Trekkers Footwear bought a piece of machinery on January 1, 2006 at a cost of $2.3 million, and the machinery is being depreciated annually at an amount of $230,000 for 10 years. Its market value on December 31, 2008 is $1.75 million. The firm's accountant is preparing its financial statement for the fiscal year end on December 31, 2008. The asset's value should be recognized on the balance sheet at

Question

Quizplus · Accepted Answer

The asset's value should be recognized based on its net book value, which is the original cost of $2.3 million minus accumulated depreciation of $690,000 ($230,000 per year x 3 years) which equals $1.61 million. The market value of $1.75 million is not used in recognizing the asset's value on the balance sheet.

Trekkers Footwear Bought a Piece of Machinery on January 1