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Hi,
Chapter 7 practice question -1Fair value adjustment $2.4/8/3, I understand 8 years but do not understand where did you get 3 ?
Thank you,
It’s part of the depreciation calculation on the fair value adjusted building
$2,400,000 was the fair value adjustment and the building had an estimated further 8 years of useful life so, for a full year, the depreciation effect on that fair value adjustment would be $2,400,000 / 8 = $300,000
But the acquisition took place part way through the year so there’s only 4 months (September – December) depreciation to calculate and if we take the annual depreciation of $300,000 and multiply by 4/12 we arrive at $100,000
is that not the same as taking $300,000 / 3 = $100,000
OK?
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