Question

A high-precision programmable router for shaping furniture components is purchased by Henredon for $190,000. It is expected to last 12 years and have a salvage value of $5,000. Calculate the depreciation deduction and book value for each year. For this question, you are NOT allowed to solve the problem using Excel functions (you may use only to check your answers).

EOY	dt of DDB	Bt	Btdt of SLN (considering switch at year t --not assuming SLN since the beginning)	dt chosen	bt using dtchosen
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2
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12

Optimum time to switch is :

i. By what amount did the book value differ from the net market value at the end of 12 years in this case?

Answer 1

Computation of the Depreciation of the Year-end and Written Down Value Working Note : 1 In the problem, Salvage Value was given and no Depreciation rate is given, Depreciation shall be computed based on Straight Line Basis 2 Cost of the Asset given $1,90,000.00 3 Less :Salvage Value $   -5,000.00 $1,85,000.00 4 Number of Years 12 5 Formula for Depreciation =(Cost of the Asset-Salvage Value)/Number of Years 6 Depreciation per annum $       15,417 EOY Opening Book Value Depreciation Closing Book Value 1 190000 15417 174583 2 174583 15417 159166 3 159166 15417 143749 4 143749 15417 128332 5 128332 15417 112915 6 112915 15417 97498 7 97498 15417 82081 8 82081 15417 66664 9 66664 15417 51247 10 51247 15417 35830 11 35830 15417 20413 12 20413 15417 4996