Question

The chester company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. the expected salvage value at the end of 15 years is $4,090,000. what will the book value of this purchase (exclude all other plant and equipment) be after its third year of use? (use fasb gaap)

Answer 1

Answer: $33,538,000

Net book value is the original or acquisition cost of an asset, minus any accumulated depreciation, depletion, amortization or impairment of the asset.

In our example, the original cost of plant and equipment purchased by Chester company is $40,900,000. The expected salvage value at the end of 15 years is $4,090,000. This means that the asset will depreciate (40,900,000-4,090,000) or 36,810,000

when the company plans to dispose of the asset in 15 years. Dividing In 36,810,000 to 15 gives 2,454,000 depreciation per year

and multiplying it by 3 gives 7,362,000 depreciation for 3 years. Book value of the purchase after its third year of use will be (40,900,000- 7,362,000) or $33,538,000.