On 1 January,Broncos Plc paid €20 million for a tract of land with a building.The building was in a bad condition and had to be refurbished for another €2 000 000.The adjacent vacant land is valued at €15 000 000.It is expected that the building will be in use for at 20 years.What is the depreciation expense for the first year?

Question

Quizplus · Accepted Answer

To calculate the depreciation expense, we need to determine the total cost of the asset and subtract the estimated residual value (value at the end of its useful life). The total cost of the asset is €22 million (€20 million for the land and building + €2 million for refurbishment). The estimated residual value is difficult to determine, but let's assume it's the value of the adjacent vacant land, which is €15 million. Therefore, the depreciable amount is €7 million (€22 million - €15 million). Dividing this by the estimated useful life of 20 years gives us an annual depreciation expense of €350,000 (€7 million / 20 years). Therefore, the correct answer is C.

On 1 January,Broncos Plc Paid €20 Million for a Tract