Question

Tan Chin Company purchases a building for \(11,300,000 on January 2, 2017. An engineer’s report shows that of the total purchase price, \)11,000,000 should be allocated to the building (with a 40-year life), \(150,000 to 15-year property, and \)150,000 to 5-year property. No residual (salvage) value should be considered. Compute depreciation expense for 2017 using component depreciation.

Short answer

Answer

The total depreciation expense is $315,000.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Depreciation

In accounting, depreciation refers to an expense incurred on an intangible asset due to corrosion and abrasion. A firm may adopt various methods for computing depreciation to reflect the true and accurate value of an asset.

Computing depreciation expense

Component	Calculation	Depreciation Expense
Building	$\frac{\$11,000,000-0}{40}$	$275,000
15-year property	$\frac{\$150,000-0}{15}$	10,000
5-year property	$\frac{\$150,000-0}{5}$	30,000
		$315,000