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A video-recording system was purchased 3 years ago at a cost of $38,000. A 5-year recovery...

A video-recording system was purchased 3 years ago at a cost of $38,000. A 5-year recovery period and DDB (Double Declining Balance) depreciation have been used to write off the basis. The system is to be replaced this year with a trade-in value of $5,500. What is the difference between the book value and the trade-in value?

The difference between the book value and the trade-in value is $ .

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Answer #1

purchase value = 38000

useful life = 5 years

d = 2/5 = 0.4

Depreciation in any year m = Purchase value * (1-d)m-1*d

Depreciation in year 1 = 38000 * 0.4 = 15200

Depreciationin year 2 = 38000 * (1-0.4)*0.4 = 9120

Depreciation in year 3 = 38000* (1-0.4)2*0.4 = 38000*0.36*0.4 = 5472

Book value aftr 3 years = Purchase value - total depreciation = 38000 - 15200 - 9120 - 5472 = 8208

Trade in value = 5500

Difference in book value and trade in value = 8208-5500 = 2708

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