A threeyearold machine that has a cost of 24500 an estimated

A three-year-old machine that has a cost of $24,500, an estimated residual value of $1,400, and an estimated useful life of 33,000 machine hours. The company uses units-of production depreciation and ran the machine 3,500 hours in year 1; 6,950 hours in year 2; and 8,200 hours in year 3. Calculate the net book value at the end of the third year.

Solution

Depreciation per hour = (Cost - Residual Value) / Estimated useful life

= ($24500 - $1400) / 33000

= $0.7

By the end of third year, machine has been used for a total of 18650 hours (3500 + 6950 + 8200)

Accumulated depreciation = 18650 * $0.7 = $13055

Net book value at the end of the third year = Cost - depreciation

= 24500 - 13055

= $11445