Question

A three-year-old machine has a cost of $19,100, an estimated residual value of $2,600, and an estimated useful life of 33,000 machine hours. The company uses units-of-production depreciation and ran the machine 4,400 hours in year 1; 8,050 hours in year 2; and 8,200 hours in year 3. Calculate the net book value at the end of the third year.

Answer 1

• All working forms part of the answer
• Working

A	Cost	$            19,100.00
B	Residual Value	$              2,600.00
C=A - B	Depreciable base	$            16,500.00
D	Usage	33,000 machine hours
E	Depreciation expense	$                       0.50 per machine hour

Year	Book Value	Usage	Depreciation expense	Ending Book Value
	[A]	[B]	[C = B x $ 0.50]	[D = A – C]
1	$       19,100.00	4,400	$            2,200.00	$             16,900.00
2	$       16,900.00	8,050	$            4,025.00	$             12,875.00
3	$       12,875.00	8,200	$            4,100.00	$                8,775.00 = Answer

• Answer: Net Book Value at the end of 3^rd Year = $ 8,775