Question

A large urban HMO purchases a vacant office building to house expanded administrative functions for $500,000. The accountant, working with their real estate agent, has estimated the value of the land at $125,000, with the remaining cost of $375,000 value for the building. Prior to using the building, renovations costing $100,000 are completed. The renovated building has an estimated useful life of 27.5 years, with no residual value. What is the annual charge for depreciation?

Answer 1

Using straight line depreciation;

Cost of the asset=$\$500,000+\$100,000=\$600,000$

Useful life of the asset=27.5 years

Salvage value is zero

Therefore,the annual charge for depreciation will be;

$\frac{cost of asset}{useful lifeof asset}=\frac{\$600,000}{27.5} \\$

$\approx\$21,819$