At the beginning of 2014, Robotics Inc. acquired a manufacturing facility for $12 million. $9 million of the purchase price was allocated to the building. Depreciation for 2014 and 2015 was calculated using the straight-line method, a 25-year useful life, and a $1 million residual value. In 2016, the estimates of useful life and residual value were changed to 20 years and $500,000, respectively.

What is depreciation on the building for 2016?

Depreciation for the year 2016: $ 393,000

Explanation:

$9 million of the purchase price was allocated to the building.

straight-line method:

(acquisition - salvage value) / useful life:

(9,000,000 - 1,000,000) / 25 = 320,000 depreciation per year

The building book value at the change of method:

9,000,000 - 320,000 x 2 = 8,360,000

As this change of method do not come from an error we do not adjust prior period. We just recalcualte the depreciaton:

(acquisition - salvage value) / useful life:

(8,360,000 - 500,000) / 20 = 393,000