Question

The “Sun-Star” Company has purchased new office furniture for their offices at a retail price of $100,000. An additional $12,000 has been charged for insurance, shipping, and handling. The company expects to use the furniture for 10 years (useful life = 10 years) and then sell it at a salvage (market) value of $8,000. Use the SL method of depreciation to answer these questions. a. What is the depreciation during the second year? b. What is the BV of the asset at the end of the first year? c. What is the BV of the asset after eight years?

Answer 1

Based on the cost of the furniture, the following are true:

• a. $10,400.
• b. $93,600
• c. $20,800

Depreciation in second year

Depreciation per year = (Cost of furniture - Salvage value) / Useful life

Cost will include both the purchase price and the charge for insurance and shipping.

= (100,000 + 12,000 - 8,000) / 10

= $10,400

BV at end of first year

= Cost - Depreciation

= 104,000 - 10,400

= $93,600

BV after 8 years

= Cost - (Depreciation x 8 years )

= 104,000 - (10,400 x 8)

= $20,800

In conclusion, depreciation is $10,400 per year.

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