Question

On January 1, 2020, CORONVS Inc. acquired a machine for $1,000,000. The estimated useful life of the asset is 5 years. The residual value at the end of 5 years is estimated to be $50,000. What is the book value of the machine at the end of 2021, if the company uses the straight-line method of depreciation?

Answer 1

Answer:

The book value of the machine at the end of 2021 is $620000.

Explanation:

The straight line depreciation allocates a constant depreciation expense throughout the useful life of the machine. The straight line depreciation expense can be calculated using the following formula,

Depreciation expense per year = (Cost - Residual value) / estimated useful life

Depreciation expense per year = (1000000 - 50000) / 5  = $190000 per year

The book value of asset is the value of the asset calculated by deducting Accumulated depreciation from its cost.

The book value of the machine at the end of 2021 will be the, considering the depreciation expense for year 2021 has been charged,

Accumulated depreciation till 2021 end = 190000 for Year 2020 + 190000 for Year 2021  =  $380000

Book value at the end of 2021 = 1000000 - 380000 = $620000