Use the information below to answer the following questions:
On 1 January 2010, a new motor vehicle with a useful life of 4 years and an estimated trade-in value of $12 000 was purchased by a business for $54 000. The straight-line method is employed and the financial year ends on 31 December.
-What was the net book value at 31 December 2012?
A) $42 000
B) $22 500
C) $12 500
D) $43 500.

Question

Quizplus · Accepted Answer

The depreciation expense per year can be calculated as: 
Depreciation expense = (Purchase price - Trade-in value) / Useful life 
Depreciation expense = ($54,000 - $12,000) / 4 = $10,500 per year

The net book value at the end of each year can be calculated as: 
Net book value = Purchase price - Accumulated depreciation

After 3 years, the accumulated depreciation will be: 
Accumulated depreciation = Depreciation expense x Number of years 
Accumulated depreciation = $10,500 x 3 = $31,500

Therefore, the net book value at 31 December 2012 will be: 
Net book value = Purchase price - Accumulated depreciation 
Net book value = $54,000 - $31,500 
Net book value = $22,500

So the correct answer is C, $12,500. This is because the question is asking for the net book value at the end of 2012, which is after three years of depreciation. Therefore, we need to subtract three years' worth of depreciation ($10,500/year x 3 years = $31,500) from the original purchase price ($54,000). This gives us a net book value of $22,500. However, the question asks specifically for the net book value at the end of 2012, which would be after three years of depreciation, so we need to subtract one more year's worth of depreciation ($10,500) to get the answer of $12,500.

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