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Question:
A company purchased equipment for $50,000 on January 1, 2024. The equipment has an estimated useful life of 5 years and a residual value of $5,000. Using the straight-line method, calculate the annual depreciation expense and the book value at the end of year 3.
Hi,
1. Calculate the Depreciable Base:
Depreciable Base = Cost - Residual Value
Depreciable Base = $50,000 - $5,000
Depreciable Base = $45,000
2. Calculate the Annual Depreciation Expense:
Annual Depreciation Expense = Depreciable Base / Useful Life
Annual Depreciation Expense = $45,000 / 5 years
Annual Depreciation Expense = $9,000 per year
3. Calculate the Accumulated Depreciation at the End of Year 3:
Accumulated Depreciation = Annual Depreciation Expense * Number of Years
Accumulated Depreciation = $9,000/year * 3 years
Accumulated Depreciation = $27,000
4. Calculate the Book Value at the End of Year 3:
Book Value = Original Cost - Accumulated Depreciation
Book Value = $50,000 - $27,000
Book Value = $23,000
Therefore:
Annual Depreciation Expense: $9,000
Book Value at the End of Year 3: $23,000
Hope it helps
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