Question

The digby 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

Answer 1

Using line depreciation method,
Depreciable cost = Cost - Salvage value = $40,900,000- $4,090,000 = $36,810,000

Depreciation per year = Depreciable cost/life = 36,810,000/15 = $2,454,000

After third year of use,

Depreciation expenses = $,2,454,000*3 = $7,362,000

Book value = cost - depreciation expenses = 40,900,000 - 7,363,000 = $33,538,000