Question

A machine has an initial cost of $50,000 and a salvage value of $10,000 after 10 years (10-yr class life).

What is the book value after five years using straight-line depreciation?

Answer 1

Initial Cost = 50,000

Salvage value = 10,000

Life = 10 years

Depreciation under the straight-line method.

Depreciation Amount = (Initial Cost – Salvage Value) ÷ Life

Depreciation Amount = (50,000 – 10,000) ÷ 10

Depreciation = 4,000

What is the book value at year 5?

What is the book value after five years?

Total accumulated depreciation for 5 years = 4,000 * 5 = 20,000

Therefore, book value at the end of year 5

Book value at 5 = 50,000 – 20,000 = 30,000

Book Value at year 5 = 30,000