Bountiful Limited purchased equipment on January 1, 2009 for $275,000. It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life. The asset's useful life was estimated at 5 years or 10,000 units of output. The company has a December 31 year end. Assuming the company uses straight-line depreciation, what is the net book value of the asset on December 31, 2012?

Question

Quizplus · Accepted Answer

The straight-line depreciation method calculates annual depreciation as (Cost - Residual Value) / Useful Life. For this equipment: ($275,000 - $25,000) / 5 years = $50,000 per year. By December 31, 2012, four years of depreciation have occurred: 4 * $50,000 = $200,000. The net book value is the original cost minus accumulated depreciation: $275,000 - $200,000 = $75,000.

Bountiful Limited Purchased Equipment on January 1, 2009 for $275,000