Magpie Ltd purchased a building on a prime central business district site for $800,000.The value of the land is considered to be $350,000.The useful life of the building is expected to be 25 years after Magpie Ltd spends a further $80,000 on improvements.The residual value of the building at that time is estimated to be $60,000.The benefits from owning the land and building are expected to be derived evenly.What is the appropriate annual depreciation charge?

Question

Quizplus · Accepted Answer

The depreciable cost of the building will be $800,000 - $350,000 = $450,000. 
After spending $80,000 on improvements, the depreciable cost will be $450,000 + $80,000 = $530,000. 
The annual depreciation charge will be ($530,000 - $60,000) / 25 = $18,800.

Magpie Ltd Purchased a Building on a Prime Central Business