Tristen Company purchased a five-story office building on January 1, 2022, at a cost of $5,700,000. The building has a residual value of $250,000 and a 20-year life. The straight-line depreciation method is used. On June 30, 2024, construction of a sixth floor was completed at a cost of $1,365,000. Required: Calculate the depreciation on the building and building addition for 2024 and 2025, assuming that the addition did not change the life or residual value of the building. (Hint: Calculate depreciation for the building and addition separately. Assume the addition has no residual value and an estimated life equal to the remaining useful life of the building.) Depreciation Year Building Addition 2024 2025

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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.