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In: Economics

Engineering Economy question! Your company purchased an asset that costs $235,000, and had an expected salvage...

Engineering Economy question!

Your company purchased an asset that costs $235,000, and had an expected salvage value of $25,000. The asset has a 15-year depreciation life, and it is kept for 15 years and then sold for $25,000. Use the SL, SYD methods to the book value and depreciation at the end of each year.

Expert Solution

SL method:

Depreciation expense in each year = (Cost – Salvage value) / Life years

= (235000 – 25000) / 15

= 210000 / 15

= 14000

Ending book value = Beginning book value – Depreciation expense

Ending book value of one year would be the beginning book value of coming year.

Depreciation schedule

Year	Beginning Book value	Depreciation expense	Ending book value
1	235000	14000	235000 – 14000 = 221000
2	221000	14000	207000
3	207000	14000	193000
4	193000	14000	179000
5	179000	14000	165000
6	165000	14000	151000
7	151000	14000	137000
8	137000	14000	123000
9	123000	14000	109000
10	109000	14000	95000
11	95000	14000	81000
12	81000	14000	67000
13	67000	14000	53000
14	53000	14000	39000
15	39000	14000	25000

SYD method:

Sum of years = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11 + 12 + 13 + 14 + 15 = 120

Depreciation base = Cost – Salvage value = 235000 – 25000 = 210000

Depreciation fraction = Remaining life years / Sum of years

Depreciation expense in each year = Depreciation base × Depreciation fraction.

Book value = Previous book value – Depreciation expense

Depreciation schedule

Year	Depreciation base	Depreciation fraction	Depreciation expense	Book value
1	210000	15/120	210000 × (15/120) = 26250	210000 – 26250 = 183750
2	210000	14/120	210000 × (14/120) = 24500	183750 – 24500 = 159250
3	210000	13/120	210000 × (13/120) = 22750	136500
4	210000	12/120	210000 × (12/120) = 21000	115500
5	210000	11/120	210000 × (11/120) = 19250	96250
6	210000	10/120	210000 × (10/120) = 17500	78750
7	210000	9/120	210000 × (9/120) = 15750	63000
8	210000	8/120	210000 × (8/120) = 14000	49000
9	210000	7/120	210000 × (7/120) = 12250	36750
10	210000	6/120	210000 × (6/120) = 10500	26250
11	210000	5/120	210000 × (5/120) = 8750	17500
12	210000	4/120	210000 × (4/120) = 7000	10500
13	210000	3/120	210000 × (3/120) = 5250	5250
14	210000	2/120	210000 × (2/120) = 3500	1750
15	210000	1/120	210000 × (1/120) = 1750	0

Rahul Sunny answered 3 years ago

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