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Homework answers / question archive / The Digby Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years

The Digby Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years

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The Digby Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $4,090,000 (1/10th of its original cost). What will be the book value of this purchase (excluding all other Plant and Equipment) after its first year of use?

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Computation of the book value of the purchase after its first year of use:-

Depreciation = (Cost - Salvage value) / Estimated useful life

= ($40,900,000 - $4,090,000) / 15

= $36,810,000 / 15

= $2,454,000

Book value = Cost - Accumulated depreciation

= $40,900,000 - $2,454,000

= $38,446,000

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