On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $380,000. The appraised values of the assets are $20,000 for the land, $340,000 for the building and $40,000 for equipment. Phillips uses the double-declining-balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000. The depreciation expense for Year 1 for the equipment is:

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The total appraised value of the assets is $400,000 ($20,000 for land + $340,000 for building + $40,000 for equipment). The cost allocated to the equipment is $38,000 ($380,000 purchase price * $40,000 equipment appraised value / $400,000 total appraised value). Using the double-declining-balance method, the depreciation expense for Year 1 is 2 * (1/4) * $38,000 = $19,000.

On January 1, Year 1, Phillips Company Made a Basket