Salem Company hired Kirk Construction to construct an office building for ₤8,000,000 on land costing ₤2,000,000, which Salem Company owned.The building was complete and ready to be used on January 1, 2011 and it has a useful life of 40 years.The price of the building included land improvements costing ₤600,000 and personal property costing ₤750,000.The useful lives of the land improvements and the personal property are 10 years and 5 years, respectively.Salem Company uses component depreciation, and the company uses straight-line depreciation for other similar assets.What total amount of depreciation expense would Salem Company report on its income statement for the year ended December 31, 2011?

Question

Quizplus · Accepted Answer

The building's depreciation is ₤8,000,000 - ₤600,000 - ₤750,000 = ₤6,650,000 over 40 years, which is ₤166,250 per year. The land improvements depreciate ₤600,000 over 10 years, which is ₤60,000 per year. The personal property depreciates ₤750,000 over 5 years, which is ₤150,000 per year. Total depreciation expense is ₤166,250 + ₤60,000 + ₤150,000 = ₤376,250.

Salem Company Hired Kirk Construction to Construct an Office Building