A piece of manufacturing equipment has an original value of $500,000 and is to be depreciated linearly over 20 years. At the end of 20 years, it will be scrapped at a value of $40,000. What will be the book value of the machine after 12 years?
Question
A piece of manufacturing equipment has an original value of 40,000. What will be the book value of the machine after 12 years?
Solution
To calculate the book value of the machine after 12 years, we first need to determine the annual depreciation.
Step 1: Calculate the total depreciation over 20 years. The total depreciation is the original value minus the scrap value. So, 40,000 = $460,000.
Step 2: Calculate the annual depreciation. The machine depreciates linearly over 20 years, so we divide the total depreciation by 20. 23,000. This means the machine depreciates by $23,000 each year.
Step 3: Calculate the depreciation for 12 years. We multiply the annual depreciation by 12. 276,000.
Step 4: Calculate the book value after 12 years. We subtract the depreciation for 12 years from the original value. 276,000 = $224,000.
So, the book value of the machine after 12 years will be $224,000.
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