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 cost of the building is $800,000, with $350,000 attributed to the land. Therefore, the building cost is $450,000. After spending an additional $80,000 on improvements, the total cost for depreciation purposes is $530,000 ($450,000 + $80,000). Subtracting the residual value of $60,000 gives a depreciable amount of $470,000. Over a useful life of 25 years, the annual depreciation charge is $470,000 / 25 = $18,800.

Magpie Ltd Purchased a Building on a Prime Central Business