A new electronic saw for cutting small pieces of lumber in a furniture manufacturing plant has...

A new electronic saw for cutting small pieces of lumber in a furniture manufacturing plant has a cost basis of $4,000 and a 10-year depreciable life. The estimated SV of the saw is zero at the end of 10 years. Calculate the book value for year six using Sinking Fund method where i = 7%.

Expert Solution

Depreciation is an expense which reduces the value of an asset due to its daily wear and tear. It is not a direct out of pocket expense and hence called as noncash expense which is debited to the profit and loss account. There are various methods of calculating depreciation and sinking fund is one them. SInking fund method is used to arrange for the cost of replacement of an asset. When the cost of an asset is way too large and the fiances are not easily available, this method is used.

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Rahul Sunny answered 8 months ago

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