Answer to Question #294779 in Economics of Enterprise for One

Question

Erectors Co. owns earth moving equipment that cost After 8 years it will have estimated salvage value of P18,000.00 Compute the depreciation charge for straight line method for first two years and the book value at the end of 5 years.

Answer 1

First two years

$Straight\ line\ Depreciation=\frac{(Cost\ of\ Asset - Residual\ value)}{Useful\ life\ of\ an\ Asset}$

$Cost\ of\ Asset=Y$

$Residual\ value=Salvage\ value=18,000$

$Useful\ life=8$

Assuming $Y=100,000$

$Straight line\ Annual\ Depreciation =$ $\frac{(100,000-18,000)}{8}$ $=10,250$

The equipment depreciates 10,250 annually.

For the first two years,

$\bold{Depreciation = 10,250 \times 2=20,500}$

At end of 5 Years

$Book\ value = Total Cost - Accumulated\ Depreciation$

$Accumulated\ Depreciation=10,250 \times 5=51,250$

$Total\ cost = 100,000$

$\bold{Book\ Value=100,000 -51,250=48,750}$