Question

"Consider the following data on an asset: Cost of an asset, I is $202,000. Useful life, N is 6 years. Salvage value, S is $67,000. Compute the resulting book value at the end of year 3 using the straight-line depreciation method."

Answer 1

Cost of asset (I) = $202,000

Salvage value (S) = $67,000

Useful life (N) = 6 years

In case of straight line method, depreciation is calculated as follows -

Depreciation = (I - S)/N

Depreciation = ($202,000 - $67,000)/6

Depreciation = $135,000/6 = $22,500

In case of straight line method, depreciatioin remains same for each year.

So, depreciation will remain $22,500 for each year.

Total depreciation at the end of three years = 3 * $22,500 = $67,500

Calculate the book value at the end of year 3 -

Book value = Cost of asset - Total depreciation at the end of three years

Book value = $202,000 - $67,500 = $134,500

The book value of asset at the end of year 3 is $134,500.