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ENGINEERING ECONOMY: Based on the ADS method, determine the depreciation amount and the book value at...

ENGINEERING ECONOMY: Based on the ADS method, determine the depreciation amount and the book value at the end of
the third year of an asset purchased by a construction company. The asset cost is $150,000 with a
market value of $35,000 at the end of useful life of 6 years.

Please answer by using equations, not excel. Thank you

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Answer #1

Solution:-

In the given case Under ADS( Alternative Depreciation system) we should use only Straight line method depreciation in which the Depreciation amount is equally Deducted from each year .

=> So the depreciation amount = [Cost - salvage value/ useful life] = [$150000-$35000/ 6 years] = $19167 per year. So for the 3rd Year the Depreciation amount is also $19167.

=>Book value is the value of assets after deducting the depreciation amount. so here.Book value at the end of Year 1 is = ($15000- $19167 )= $130833. Book value at the End of year 2 is = ($130833- $19167) = $111666. Book value at the End of Year 3 is = ($111666- $19167) = $92499

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