The Chester Company has just purchased 40900000 of plant and

The Chester Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. The expected salvage value at the end of 15 years is $4,090,000. What will the book value of this purchase (exclude all other plant and equipment) be after its third year of use? (Use FASB GAAP)

Solution

Calculation of book value of plant and machinery Chester company

Given purchase value of plant and machinery is $40,900,000

Salvage value at the end of 15th year is $4,090,000

In accordance with Generally accepted accounting principles

Depreciation as per Straight line method will be = (Cost of the asset-salvage value at the end) /Life of the asset

therefore depreciation for each year will be = ($40,900,000-$4,090,000)/15

=$36,810,000/15

Depreciation =$2,454,000

Depreciation for three years will be as per staright line method = $2,454,000*3

= $7,362,000

Book Value at the end of 3rd year will be = Cost of asset - depreciation upto the current yesr

$ 40,900,000-$7,362,000

= $33,538,000