Question

The Andrews Company has just purchased $55,736,000 of plant and equipment that has an estimated useful life of 15 years. The expected salvage value at the end of 15 years is $5,573,600. 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:

Book value = $45,703,520

Explanation:

We can calculate the book value of purchase after its third year of use by deducting all three years of depreciation from the cost of the asset.

DATA

Purchase cost = $55,736,000

Useful life = 15 years

Salvage value = $5,573,600

Solution

Book value = Cost - Accumulated depreciation

Book value = $55,736,000 - $10,032,480(w)

Book value = $45,703,520

Working

Depreciation per year = $\frac{Cost-salvagevalue}{life}$

Depreciation per year = $\frac{55,736,000-5,573,600}{15}$

Depreciation per year =  $3,344,160

Depreciation for 3 years = $3,344,160 x 3

Depreciation for 3 years = $10,032,480

Three years accumulated depreciation for three years would be $10,032,480