Question

Problem 11-1 Jain Mart is to depreciate an asset bought for $500,000 using the SOYD method over a life of 8 years. If the depreciation charges in year 3was $80,000, determine the salvage value used in computing the depreciation charges in year 3. A. $50,000 B. $20,000 C. $1

Answer 1

Answer:

B. $20,000

Explanation:

Depreciation in year 3 = $80,000

According to the sum of the Years' Digits Depreciation, the depreciation for an asset bought for $500,000 and an expected life of 8 years, at year 3, is given by:

$D_{y=3}=\ 80,000 = \frac{8-2}{8+7+6+5+4+3+2+1}*(\ 500,000-Salvage) \\Salvage = 6*(\frac{\ 500,000}{6} -\ 80,000)\\Salvage=\ 20,000$

The salvage value used in computing the depreciation charges is $20,000.