Question

A wood products company has decided to purchase new logging equipment for ​$88 comma 00088,000 with a​ trade-in of its old equipment. The old equipment has a BV of ​$9 comma 0009,000 at the time of the​ trade-in. The new equipment will be kept for 1010 years before being sold. Its estimated SV at the time is expected to be ​$3000. Using the SL​ method, what is the depreciation on the equipment over its annual depreciable life​ period?

Answer 1

Annual depreciation = $9400

Step-by-step explanation:

The new logging equipment has been purchased by paying $88000 in cash along with the exchange of the old equipment which has a book value of $9000, this means the cost of the new logging equipment to the wood product company is the accumulated amount of cash and exchange (i.e cash paid+value of asset traded= $88000 + $9000), therefore the the new logging equipment will be recorded at a price of $97000.

Now, under the straight line method an equal amount of depreciation is charged against the cost of the equipment. The formula is as follows:

Depreciation = Cost - salvage value ÷ useful life

Annual depreciation = $97000 - $3000 ÷ 10

Annual depreciation = $9400