Newark Company purchased a machine for $35 000 on 1 January 2012 with an estimated life of 5 years and a residual value of $5000. The straight-line method of depreciation is used. What is the carrying value of the machine on the 31 December 2014 in the balance sheet of Newark Company?

Question

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The cost of the machine is $35,000 and the residual value is $5,000, leaving $30,000 to be depreciated over 5 years. This results in an annual depreciation expense of $6,000 ($30,000 / 5 years). By 31 December 2014, three years of depreciation have accumulated, totaling $18,000 ($6,000 x 3 years). Subtracting this from the original cost gives a carrying value of $17,000 ($35,000 - $18,000).

Newark Company Purchased a Machine for $35 000 on 1