Bart's Company has prepared the PP&E and depreciation schedule shown in Exhibit 8.54.1 below. The following information is available. Assume the beginning balance has been audited The land was purchased eight years ago when building 1 was erected. The location was then remote but now is bordered by a major freeway. The appraised value of the land is $35 million. Building 1 has an estimated useful life of 35 years and no residual value.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Bart's Company has prepared the PP&E and
The following information is available. Assume the beginning balance has been audited
- The land was purchased eight years ago when building 1 was erected. The location was then remote but now is bordered by a major freeway. The appraised value of the land is $35 million.
- Building 1 has an estimated useful life of 35 years and no residual value.
- Building 2 was built by a local contractor this year. It also has an estimated useful life of 35 years and no residual value. The company occupied it on May 1 this year.
- Computer A system was purchased on January 1 six years ago when the estimated useful life was eight years with no residual value. It was sold on May 1 for $500,000.
- Computer B system was placed in operation as soon as Computer A system was sold. It is estimated to be in use for six years with no residual value at the end.
- The company estimated the useful life of the press at 20 years with no residual value.
- Auto 1 was sold during the year for $1,000.
- Auto 2 was purchased on July 1. The company expects to use it for five years and then sell it for $2,000.
- All depreciation is calculated on the straight-line method using months of service.
EXHIBIT 8.54.1 PP&E and Depreciation
| Description | Asset Cost (000s) | |||||||
|---|---|---|---|---|---|---|---|---|
| Beginning Balance | Added | Sold | Ending Balance | Beginning Balance | Added | Sold | Ending Balance | |
| Land | $ 10,000 | $ 10,000 | ||||||
| Building 1 | 30,000 | 30,000 | $ 6,857 | $ 857 | $ 7,714 | |||
| Building 2 | 42,000 | 42,000 | 800 | 800 | ||||
| Computer A | 5,000 | 5,000 | 0 | 3,750 | 208 | 3,958 | 0 | |
| Computer B | 3,500 | 3,500 | 583 | 583 | ||||
| Press | 1,500 | 1,500 | 300 | 150 | 450 | |||
| Auto 1 | 15 | 15 | 0 | 15 | 15 | 0 | ||
| Auto 2 | 22 | 22 | 2 | 2 | ||||
| Total | $ 46,515 | $ 45,522 | $ 5,015 | $ 87,022 | $ 10,922 | $ 2,600 | $ 3,973 | $ 9,549 |
Required:
a. Verify the depreciation calculations. Are there any errors? Put the errors in the form of an
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