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10 March, 00:57

A machine that cost $400,000 has an estimated residual value of $40,000 and an estimated useful life of four years. The company uses straight-line depreciation. Calculate its book value at the end of year 3

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  1. 10 March, 04:51
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    Book value at the end of year 3 of the machine: $130,000

    Explanation:

    The company uses straight-line depreciation method, Depreciation Expense each year is calculated by following formula:

    Depreciation Expense = (Cost of machine - Residual Value) / Useful Life = ($400,000-$40,000) / 4 = $90,000

    At the end of year 3, Accumulated depreciation = $90,000 x 3 = $270,000

    Book value of the machine is: the machine's cost minus the machine's accumulated depreciation.

    At the end of year 3, Book value of the machine = $400,000 - $270,000 = $130,000
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