Question

The Chester Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. The expected salvage value at the end of 15 years is $4,090,000. What will the book value of this purchase (exclude all other plant and equipment) be after its third year of use? (Use FASB GAAP)

Select: 1

	$35,446,667
	$33,538,000
	$29,448,000
	$32,720,000

Answer 1

Calculation of book value of plant and machinery Chester company

Given purchase value of plant and machinery is $40,900,000

Salvage value at the end of 15th year is $4,090,000

In accordance with Generally accepted accounting principles

Depreciation as per Straight line method will be = (Cost of the asset-salvage value at the end) /Life of the asset

therefore depreciation for each year will be = ($40,900,000-$4,090,000)/15

=$36,810,000/15

Depreciation =$2,454,000

Depreciation for three years will be as per staright line method = $2,454,000*3

= $7,362,000

Book Value at the end of 3rd year will be = Cost of asset - depreciation upto the current yesr

$ 40,900,000-$7,362,000

= $33,538,000