Question

A machine that cost $594,000 has an estimated residual value of $27,000 and an estimated useful life of 27,000 machine hours. The company uses units-of-production depreciation and ran the machine 7,000 hours in year 1, 9,000 hours in year 2, and 8,000 hours in year 3. Calculate its book value at the end of year 3.

Answer 1

Answer:

17000

Step-by-step explanation:

Using reducing balance method which is

R% (1-n√s/c) x 100

Where r= annual rate of depreciation

N= No of useful year of the asset

S= Scrap Value

C- Cost of the Asset

N= 27000 hours

S= 27000

C= 594000

1-³√27000÷594000 x100

(1-0.3569) x 100= 64.3% = 0.643

Calculating NBV

Year 1 Annual dep 7000. Net book value = 7000+27000(residual value = 34000

Year 2 34000-9000= 25000

Year 3 25000-8000= 17000.

Net book value for the 3rd year = 17000

The total sum of the three years 1+2+3= 6

To calculate, no of years/total no of years x Cost - Scrap value

Year 1 3/6 x 567000= 283,500

Year 2 2/6 x 567000= 189000

Year 3 1/6 x 567000= 94,500