Nigeria Ltd. acquires a new machine. It is comprised of two different components (A and B) that are expected to be overhauled at different times. The acquisition costs of the components are as follows:
$\begin{array}{llcc}
\text { Comportent A: } &\$198,000 \

\text {Component B: } &\$240,000\
\end{array}$

Component A is expected to have a useful life of 5 years and a residual value of $ 20,000 before the first major overhaul is required. Component B is expected to have a useful life of 7 years and a residual value of $ 15,000 before its first overhaul. Nigeria uses straight-line depreciation for all its equipment. What is the net book value of component A after 5 years?
A) $ 0
B) $ 19,000
C) $ 20,000
D) $ 55,600

Question

Nigeria Ltd. acquires a new machine. It is comprised of two different components (A and B) that are expected to be overhauled at different times. The acquisition costs of the components are as follows:
$\begin{array}{llcc}
  \text { Comportent A: } &\$198,000  \

\text {Component B:  } &\$240,000\
\end{array}$

Component A is expected to have a useful life of 5 years and a residual value of $ 20,000 before the first major overhaul is required. Component B is expected to have a useful life of 7 years and a residual value of $ 15,000 before its first overhaul. Nigeria uses straight-line depreciation for all its equipment. What is the net book value of component A after 5 years?
A) $ 0
B) $ 19,000
C) $ 20,000
D) $ 55,600

Quizplus · Accepted Answer

The annual depreciation for component A is calculated as follows:
Depreciation = (Acquisition cost - Residual value) / Useful life 
= ($198,000 - $20,000) / 5 years 
= $35,600 per year

After 5 years, the accumulated depreciation would be:
Accumulated depreciation = Depreciation per year x Number of years 
= $35,600 x 5 years 
= $178,000

Therefore, the net book value of component A after 5 years would be:
Net book value = Acquisition cost - Accumulated depreciation - Residual value 
= $198,000 - $178,000 - $20,000 
= $0

Hence, the correct answer is option C, $20,000.

Nigeria Ltd Comportent A: $198,000Component B: $240,000\begin{array}{llcc} \text { Comportent A: } &\$198,000 \\ \text {Component B: } &\$240,000\\\end{array} Comportent A: Component B: ​$198,000$240,000​

Nigeria Ltd $\begin{array}{llcc} \text { Comportent A: } &\$198,000 \\ \text {Component B: } &\$240,000\\\end{array}$