Question

Your plant manager wants you to buy a new lathe for $410000. The lathe should be...

Your plant manager wants you to buy a new lathe for $410000. The lathe should be useful to your company for 8 years at which point you plan to replace. The estimated salvage value at the end of the useful life is $20000. Using straight line depreciation what is the Book value when the asset is sold?

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Answer #1

The straight line depreciation for the lathe would be calculated as follows:

  1. Cost of the asset: $410000
  2. Salvage Value = $20000
  3. Useful life = 8 years
  4. Total DepreciableCost = Cost of the asset – Estimated salvage value= $4100,00 – $20,000 = $390,000
  5. Annual Depreciated amount = $390,000 / 8 years = $48750

Therefore, Company would depreciate the lathe at the amount of $48750 annually for 8 years using Straight line depreciation method..

the book value of the lathe at the end of year 8 is the same as the salvage value $20000...

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