4) A steam turbine was purchased five years ago at a price of P 2, 750, 000 including tax. Installation and freight charges amounts to P 220, 000 with a miscellaneous expenses of P 175,000. It is expected to last twenty more years with a scrap value of P 315, 000. Depreciation method uses the Sinking fund with an interest rate of 10%. a) What would be the book value of the turbine seven years from now? b) Assuming ten years from now, the steam turbine was totally damaged and needs to be replace by a new one which costs P 3.5 million including tax and other charges, how much more money does the owner needs?

4) A steam turbine was purchased five years ago at a price of P 2, 750, 000 including tax. Installation and freight charges amounts to P 220, 000 with a miscellaneous expenses of P 175,000. It is expected to last twenty more years with a scrap value of P 315, 000. Depreciation method uses the Sinking fund with an interest rate of 10%. a) What would be the book value of the turbine seven years from now? b) Assuming ten years from now, the steam turbine was totally damaged and needs to be replace by a new one which costs P 3.5 million including tax and other charges, how much more money does the owner needs?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

4) A steam turbine was purchased five years ago at a price of P 2, 750, 000 including tax.
Installation and freight charges amounts to P 220, 000 with a miscellaneous expenses of P
175,000. It is expected to last twenty more years with a scrap value of P 315, 000. Depreciation
method uses the Sinking fund with an interest rate of 10%.
a) What would be the book value of the turbine seven years from now?
b) Assuming ten years from now, the steam turbine was totally damaged and needs to be replace
by a new one which costs P 3.5 million including tax and other charges, how much more money
does the owner needs?

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