Question

A certain equipment which cost P500,000 when brand new has a salvage value of x pesos and is expected to last for 23,000 hours in a period of 5 years. In the first year of service it was used for 7,000 hours. If the book value of the equipment is P350,000 at the end of the first year, what is the value of "x" in pesos?

Answer 1

Cost of Equipment = P500,000

Depreciaiton for 1st year = Cost of Equipment - Book value of equipment at the end of 1st year

= P500,000 - P350,000

= P150,000

Depreciation is based on hours

First year of service = 7,000

Total Service = 23,000

Salvage Value = x

Depreciation for 1st year = [Cost of Equipment - Salvage Value] * First year of service / Total Service

P150,000 = [P500,000 - x] * 7,000 / 23,000

P500,000 - x = P492,857.143

x = P500,000 - P492,857.143

x = P7,142.857

Therefore, Salvage Value is P7,143