A three-year-old machine that has a cost of $37,400, an estimated residual value

Question

A three-year-old machine that has a cost of $37,400, an estimated residual value of $2,300, and an estimated useful life of 39,000 machine hours. The company uses units-of production depreciation and ran the machine 3,800 hours in year 1; 6,650 hours in year 2; and 7,400 hours in year 3.

Calculate the net book value at the end of the third year.

A three-year-old machine that has a cost of $37,400, an estimated residual value of $2,300, and an estimated useful life of 39,000 machine hours. The company uses units-of production depreciation and ran the machine 3,800 hours in year 1; 6,650 hours in year 2; and 7,400 hours in year 3.

Calculate the net book value at the end of the third year.

Explanation / Answer

Depreciation per machine hour=(Cost-Residual value)/Useful Life

=(37400-2300)/39000=$0.9/machine hour

Hence net book value at the end of the third year=Cost-Accumulated Depreciation

=$37400-0.9*(3800+6650+7400)

which is equal to

=$21335.

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