Question

Problem 16.011: Determine the salvage value, annual depreciation, and book value after a certain number of years for an asset using Straight Line method Goodson Healthcare purchased a new sonogram imaging unit for $300,000 and a truck body and chassis for an additional $100,000 to make the unit mobile. The unit-truck system will be depreciated as one asset. The functional life is 8 years, and the salvage is estimated to be 15% of the purchase price of the imaging unit regardless of the number of years of service. Use classical Straight Line depreciation to determine the salvage value, annual depreciation, and book value after 5 years of service. The salvage value is determined to be $ The annual depreciation is determined to be $ The book value after 5 years of service is determined to be $ .

Answer 1

Purchase price of the unit= $3,00,000
Additional costing (Truck body & chassis) = $1,00,000
Total cost of the unit= $4,00,000

Answer to Part A) The salvage value is determined to be $60,000.
Working: Salvage value= 15% of $400000= $60,000

Answer to Part B)The annual depreciation is determined to be $42,500.
Working: Depreciation= Purchase Price- Salvage value/Life of Asset
= $4,00,000- $60,000/8 years
= $42,500.

Answer to Part C) The book value after 5 years of service is determined to be $1,87,500.
Working:
Depreciation for 5 years= 5years* $42500= $2,12,500.
Book value at the end of 5 years= $4,00,000- $2,12,500= $1,87,500.