Question

Your firm purchased equipment costing $400,000 1 year ago. The firm also incurred shipping costs of $18,000 and installation costs of $2,000. The IRS allows this category of equipment to be depreciated over 4 years. The equipment is expected to sell for $40,000 today. What is the book value of the asset at the time of the sale?

Answer 1

The book value is computed as shown below:

= (Purchase cost of equipment + shipping cost + installation cost) / Number of years

= ($ 400,000 + $ 18,000 + $ 2,000) / 4

= $ 105,000

So, the book value will be as follows:

= $ 400,000 + $ 18,000 + $ 2,000 - $ 105,000

= $ 315,000

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