Question

"You plan to buy a piece of machinery worth $50,000 then you plan to sell it at the end of its 15-year life cycle for $5,000. What is the SL depreciation of this? What is the book value at year 5?"

Answer 1

Answer:

$3,000 and $35,000

Explanation:

The computations are shown below:

The depreciation expense would be

=(Original cost - residual value) ÷ (useful life)

= ($50,000 - $5,000) ÷ (15 years)

= ($45,000) ÷ (15 years)  

= $3,000

In this method, the depreciation is same for all the remaining useful life

The book value would be

= (Original cost of equipment) - (depreciation × number of years)

= ($50,000) - ($3,000 × 5 years)

= $50,000 - $15,000

= $35,000