Reference no: EM133132313

Question - You are the CPA for a nonprofit organization that has reha- bilitated a 200-year-old building into a museum. The cost of about $20 million was paid by a grant to the organiza- tion, and you now have a $20 million asset on the books. In discussions with the building contractor, they say that, while the basic structural components will last longer, in about twenty years much of the work will be obsolete. Based on this, you determine to depreciate the improve- ments over a twenty-year life. You run this by the auditor, who agrees that this is reasonable. Over the history of the organization, they have generally broken even; revenues cover the expenses. The director of development, who raises money, is concerned that the non-cash charge of $1 million depreciation expense every year will make the organization show a deficit each year for the next twenty years, which will greatly complicate her fundraising efforts. Since it is a 200-year-old building, and depreciation is a non-cash charge, she is pushing for a seventy-five-year life. How would you react to this? Would the fact that this organization does not pay taxes factor into your decision? What about if they did? How Long Does a Building Last?