In 1991, Lincoln Limited completed the construction of a building at a cost of $1.8 million; it

Question:

In 1991, Lincoln Limited completed the construction of a building at a cost of $1.8 million; it occupied the building in January 1992. It was estimated that the building would have a useful life of 40 years and a residual value of $400,000.

Early in 2003, an addition to the building was constructed at a cost of $750,000. At that time, no changes were expected in its useful life, but the residual value with the addition was estimated to increase by $150,000. The addition would not be of economic use to the company beyond the life of the original building.

In 2020, as a result of a thorough review of its depreciation policies, company management determined that the building’s original useful life should have been estimated at 30 years. The neighbourhood where the building is has been going through a renewal, with older buildings being torn down and new ones being built. Because of this, it is now expected that the company’s building and addition are unlikely to have any residual value at the end of the 30-year period. Lincoln Limited follows IFRS for its financial statements.

Instructions

a. Using the straight-line method, calculate the annual depreciation that was charged from 1992 through 2001.

b. Calculate the annual depreciation that was charged from 2002 through 2019.

c. Digging Deeper Prepare the entry, if necessary, to adjust the account balances because the estimated useful life was revised in 2020.

d. Calculate the annual depreciation to be charged beginning with 2020.

e. Comment on the revision of the estimated useful life in 2020, from the perspective of an investor who bought shares in Lincoln in 2019.

f. Repeat parts (a) through (d) assuming Lincoln Limited prepares its financial statements using ASPE. The original estimate of the physical life of the building was 44 years, with a salvage value of $216,000. (Ignore the addition in early 2002.) In 2020, the estimated useful life and physical life were both revised to be 30 years, with no residual value/salvage value for the asset at the end of the 30-year period.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...

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