Question

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timberly construction makes a lump - sum purchase of several assets on january 1 at a total cash price of $810,000. the estimated market values of the purchased assets are building, $444,150; land, $292,950; land improvements, $28,350; and four vehicles, $179,550.
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compute the first - year depreciation expense on the land improvements assuming a five - year life and double - declining - balance depreciation.
depreciation expense on land improvements

Explanation:

Step1: Allocate cost to land improvements

First, find the total market value of all assets:
\(444150 + 292950 + 28350 + 179550 = 945000\)

Then, allocate the lump - sum cost (\(810000\)) to land improvements. The proportion of land improvements' market value is \(\frac{28350}{945000}\).
Cost of land improvements \(=\frac{28350}{945000}\times810000 = 24300\)

Step2: Calculate double - declining - balance depreciation rate

The double - declining - balance depreciation rate for a 5 - year life is \(\frac{2}{5}= 0.4\) or \(40\%\)

Step3: Calculate first - year depreciation

Depreciation expense = Book value at the beginning of the year×Depreciation rate.
For the first year, the book value of land improvements is its cost (\(24300\)) (since it's the first year, no prior depreciation).
Depreciation expense \(=24300\times0.4 = 9720\)

Answer:

\(9720\)