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A construction company decided to purchase a concrete mixer truck for $75,000 with a trade-in of their old mixer
A construction company decided to purchase a concrete mixer truck for $75,000 with a trade-in of their old mixer. The old mixer has a trade-in value of $7,000. The new mixer will be kept for 15 years before being sold. Its estimated salvage value at that time is expected to be $5,000. Assume interest to be 12%. Determine the 9th year BVB by Sum of Years Digit Method.
Expert Solution
Answer:
Initial cost of the concrete mixer truck = $75,000 - trade in value of the old mixer ( $ 7000)
Initial cost of the concrete mixer truck = $ 68,000
Depreciation base = Initial cost of the concrete mixer truck - estimated salvage value
Depreciation base = $ 68,000 - $ 5000 = $ 63,000
Sum of years of useful life = 120
The depreciation schedule for the truck is shown in the table.
The depreciation for 9th year = ( 7 
120) 
$ 63,000
Depreciation for 9th year = $ 3675
Book value at end of 9th year = $ 63,000 - accumulated depreciation
Book value at end of 9th year = $ 63,000 - $ 51,975
Book value at end of 9th year = $ 11025
PFA
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