Question

Ween Berhad is considering the purchase of a new piece of equipment to replace the current equipment. The new equipment costs RM75,000 and requires RM5,000 in installation costs. It shall be depreciated under MACRS using a 5-year recovery period (See MARCS in Appendix to Question Paper). The old piece of equipment was purchased 4 years ago for an installed cost of RM50,000; it was being depreciated under MACRS using a 5-year recovery period. The old equipment can be sold today for RM55,000 net of any removal or cleanup costs. As a result of the proposed replacement, the firm's investment in net working capital is expected to increase by RM15,000. The firm pays tax at a rate of 40%.

(a). Calculate the book value of the old piece of equipment.

Answer 1

The New book value for Old piece Equipment is RM30, 000.

What is Depreciation?

Depreciation is an accounting technique for spreading out the expense of a tangible item over the course of its useful life. How much of an asset's value has been used is shown through depreciation. It enables businesses to purchase assets over a predetermined length of time and generate income from those assets.

Given:

We know

Net Book Value = Original Asset Cost – Accumulated Depreciation.

Accumulated Depreciation

= 5000 x 5

= 25000

Net Book Value = $55000– $25000= $30000

Hence, the New book value for Old piece Equipment is RM30, 000.

Learn more about Depreciation here: