Question 10 In 1988, Waterway Limited completed the construction of a building at a cost of $2.28 million; it occupied the building in January 1989. It was estimated that the building would have a useful life of 40 years and a residual value of $480,000. Early in 1999, an addition to the building was constructed at a cost of $1,010,000. At that time, no changes were expected in its useful life, but the residual value with the addition was estimated to increase by $110,000. The addition would not be of economic use to the company beyond the life of the original building. In 2017, as a result of a thorough review of its depreciation policies, company management determined that the buildings 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 companys building and addition are unlikely to have any residual value at the end of the 30-year period. Waterway Limited follows IFRS for its financial statements.

(a)

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Using the straight-line method, calculate the annual depreciation that was charged from 1989 through 1998.

Annual depreciation, 1989 through 1998

$ / year

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(b)

Calculate the annual depreciation that was charged from 1999 through 2016.

Annual depreciation, 1999 through 2016

$ / year