Concept explainers
i.
Book Value after 2 years.
Answer to Problem 51P
Book Value after 2 years is $40800.
Explanation of Solution
Given:
Useful Life = 5 years
Cost of asset = $85000
Salvage Value = $15000
ADR life = 8 years.
Calculation:
MACRS
| Recovery Year, t (year) | MACRS |
| 1 | 20% |
| 2 | 32% |
| 3 | 19.20% |
| 4 | 11.52% |
| 5 | 11.52% |
| 6 | 5.76% |
| 100% |
The asset is a 5-year property with asset depreciation range (ADR) class life of more than 10 years and less than 16 years.
Book Value is calculated of an asset at the end of 1st year of its useful life period.
T = 1
B = $85000
| Years | Depreciation charge | Book Value |
| 1 | 17000 | 68000 |
| 2 | 27200 | 40800 |
| 3 | 16320 | 24480 |
| 4 | 9792 | 14688 |
| 5 | 9792 | 4896 |
| 6 | 4896 | 0 |
| 7 | 0 | 0 |
| 8 | 0 | 0 |
| 85000 |
Conclusion:
Book Value after 2 years is $40800.
ii.
Book Value after 4 years.
Answer to Problem 51P
The book value of the asset after 4 years of its useful life is $14688.
Explanation of Solution
Given:
Useful Life = 5 years
Cost of asset = $85000
Salvage Value = $15000
ADR life = 8 years.
Calculation:
The book value of the asset after 4 years of its useful life is $14688.
| Years | Depreciation charge | Book Value |
| 1 | 17000 | 68000 |
| 2 | 27200 | 40800 |
| 3 | 16320 | 24480 |
| 4 | 9792 | 14688 |
| 5 | 9792 | 4896 |
| 6 | 4896 | 0 |
| 7 | 0 | 0 |
| 8 | 0 | 0 |
| 85000 |
Conclusion:
The book value of the asset after 4 years of its useful life is $14688.
iii.
The accumulated depreciation charge of the asset through the 5th year.
Answer to Problem 51P
The accumulated depreciation charge of the asset through the 5th year is $80104.
Explanation of Solution
Given:
Useful Life = 5 years
Cost of asset = $85000
Salvage Value = $15000
ADR life = 8 years.
Calculation:
The accumulated depreciation charge of the asset through the 5th year
Here,
| Year | depreciation (d) |
| 1 | $17,000 |
| 2 | $27,200 |
| 3 | $16,320 |
| 4 | $9,792 |
| 5 | $9,792 |
| $80,104 |
Conclusion:
The accumulated depreciation charge of the asset through the 5th year is $80104.
iv.
Depreciation charge of the asset for the 6th year.
Answer to Problem 51P
The depreciation charge of the asset for the 6th year is $4896.
Explanation of Solution
Given:
Useful Life = 5 years
Cost of asset = $85000
Salvage Value = $15000
ADR life = 8 years.
Calculation:
| Years | Depreciation charge | Book Value |
| 1 | 17000 | 68000 |
| 2 | 27200 | 40800 |
| 3 | 16320 | 24480 |
| 4 | 9792 | 14688 |
| 5 | 9792 | 4896 |
| 6 | 4896 | 0 |
| 7 | 0 | 0 |
| 8 | 0 | 0 |
| 85000 |
Conclusion:
The depreciation charge of the asset for the 6th year is $4896.
v.
The book value of the asset for the 8th year.
Answer to Problem 51P
The book value of the asset for the 8th year, using MACRS is $0.
Explanation of Solution
Given:
Useful Life = 5 years
Cost of asset = $85000
Salvage Value = $15000
ADR life = 8 years.
Calculation:
Book Value is calculated of an asset at the end of 1st year of its useful life period.
Useful Life = 5 years
Cost of asset = $85000
Salvage Value = $15000
ADR life = 8 years.
T = 1
B = $85000
| Years | Depreciation charge | Book Value |
| 1 | 17000 | 68000 |
| 2 | 27200 | 40800 |
| 3 | 16320 | 24480 |
| 4 | 9792 | 14688 |
| 5 | 9792 | 4896 |
| 6 | 4896 | 0 |
| 7 | 0 | 0 |
| 8 | 0 | 0 |
| 85000 |
Conclusion:
The book value of the asset for the 8th year, using MACRS is $0.
vi.
Book Value at the end of 3rd year using straight Line Method.
Answer to Problem 51P
The book value of the asset after 3rd year is $58570.
Explanation of Solution
Given:
Useful Life = 5 years
Cost of asset = $85000
Salvage Value = $15000
ADR life = 8 years.
Calculation:
Straight Line depreciation Method:
T = 1 year
B = $85000
S = $15000
N = 8
Straight Line depreciation is constant throughout the depreciable Life. Thus, the depreciation charge for the asset is $8750 for every year throughout the depreciable life of the asset.
Book Value at the end of 3rd year
Conclusion:
Thus, the book value of the asset after 3rd year is $58570.
vi.
Book value of the asset after 8th year.
Answer to Problem 51P
Book value of the asset after 8th year is $15000.
Explanation of Solution
Given:
Useful Life = 5 years
Cost of asset = $85000
Salvage Value = $15000
ADR life = 8 years.
Calculation:
Conclusion:
Thus, the book value of the asset after 8th year is $15000.
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Chapter 11 Solutions
ENGINEERING ECO ANALYSIS W/STUDY GUIDE
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