Equipment is purchased which has an initial cost of 125000 I

Equipment is purchased which has an initial cost of $125,000. It has a 10 year life and its salvage value is estimated to be $12,000.

Determine the book value of the asset after six year.

Solution

Depriciation expense per year = ( Initial cost - Salvage value ) / 10

Initial cost - Salvage value is equal to the toatl depriciation accumulated in 10 years and as we have to find out the book value after 6 years therefore accumulated depriciation in 6 years has to be find out first.

Depriciation expense per year = ( $125,000 - $12000 ) / 10

                                            = $113,000 / 10

                                            = $11,300

Total accumulated depriciation in 6 years = $11,300 * 6

                                                            = $67,800

Book Value = Cost - Accumulated Depriciation

                 = $125,000 - $67,800

                 = $57,200