Question

The Andrews Company has just purchased $50,455,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $5,045,500 (1/10th of its original cost). What will be the book value of this purchase (excluding all other Plant and Equipment) after its first year of use? Use generally accepted (FASB) accounting principles

Answer 1

Answer:

First step to solving the given question is finding amount of depreciation to be charged each year. As per the generally accepted principles of accounting Straight line method of calculating depreciation is a widely used and accepted method. Thus, we shall use this method to calculate depreciation as below:

Depreciation= (Total Value of Asset- Salvage Value)/ No of years of useful life.

Depreciation=(40900000-4090000)/15

Depreciation= $2454000 per year

Thus at the end of year 1 book value of the asset will be as below:

Cost of the asset $40900000

Less: Depreciation ($2454000)

Book Value of the asset $38446000