Question

The Chester Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. The expected salvage value at the end of 15 years is $4,090,000. What will the depreciation expense for this purchase (exclude all other plant and equipment) be for the second year of use? (Use FASB GAAP)

a. $2,726,667
b. $2,454,000
c. $5,453,333
d. $4,908,000

Answer 1

b.2,454,000

Step-by-step explanation:

The Depreciation expense for the item plant and equipment can be calculated using the following formula:

Depreciation=Cost of asset-Salvage value/useful life

In this question

Cost of asset is $40,900,000

Salvage value is $4,090,000

Useful life is 15 years

Hence Depreciation expense to be recognised in the accounts of the Chester Company in respect of an item of plant and equipment for the second year of use shall be:

Depreciation=$40,900,000-$4,090,000/15=$2,454,000

Therefore, the answer is b.2,454,000