Cisco Systems is purchasing a new bar codeminusscanning device for its service c

Question

Cisco Systems is purchasing a new bar codeminusscanning device for its service center in San Francisco. The table that on the right lists the relevant cost items for this purchase. The operating expenses for the new system are $12,000 per year, and the useful life of the system is expected to be four years. The SV for depreciation purposes is equal to 25% of the hardware cost.

Cost item Cost

Hardware $150000

Training $15000

Installation $13000

a. Using the SL depreciation method the BV of the device at the end of year two is .....$ (Round to the nearest dollar.)

b.The device's book value at the end of year three using the method described above is ........$(Round to the nearestdollar.)

Explanation / Answer

Calculating the basic cost :-

Basic Cost = $150000 + $15000 + $13000

= $1,78,000

Now, SV = 25% of hardware cost.

= 25% * 150000

= $37,500

a) calculating depriciation, d

d = (BC - SV) / useful life

= (178000 - 37500) / 4

= $ 35125

now, BV2 = BC - 2(d)

= 178000 - 2 (35125)

= $ 107750

b) BV3 = BC - 3(d)

= 178000 - 3(35125)

= $ 72625  

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