Sargent Corporation bought equipment on January 1, 2011.The equipment cost €180,000 and had an expected residual value of €30,000.The life of the equipment was estimated to be 6 years.The book value of the equipment at the beginning of the third year would be

Question

Quizplus · Accepted Answer

The annual depreciation expense can be calculated using the straight-line method: 
Depreciation expense = (cost - residual value) / useful life = (€180,000 - €30,000) / 6 = €25,000 per year.

After two years, the accumulated depreciation would be 2 x €25,000 = €50,000.
The book value (or carrying value) of the equipment at the beginning of the third year would be the cost minus the accumulated depreciation: 
Book value = cost - accumulated depreciation = €180,000 - €50,000 = €130,000.

Sargent Corporation Bought Equipment on January 1, 2011