Question

question 15+20

the following data are available for a foundry operation started as a new company four years ago when the construction cost index was 125

current liabilities $170000

operating income $176200

NBV long term assets (end year 3) $687500

current assets $300000

GROSS BOOK VALUE $1100000

estimated total useful life 8 years

Age of assets 4 years

construction cost index end of year 4 150

of long term assets at historical cost

1- what is the net book value (NBV) of long -term assets at current cost at the end of yea 4?

1-$660000

2-$1180000

3-$1760000

4-$960000

5-$800000

2-what is the year 4 operating income using year 4 current cost amortization ?

1-$176200

2-$73700

3-$18700

4-$(126300)

5-$148700

1-12%

2-22.50%

3-(11.50)%

Answer 1

1.

Gross value of assets = $1100000

Life of asset = 8 years

Depreciation per year = $1100000/8

= $137500

Value of asset at end of 3 years = $687500

Hence value of assets after depreciation at end of 4 years =$687500-$137500 =$550000.

Now , cost index before 4 year was 125 and end of year is 150

Hence Net value of asset = $550000 x 150/125 =$660000.

2.