The accounting year of Fehintola Ltd. ends on 31st December every year. Pant and Machinery purchased on 1st January, Year 1 N600,000 Depreciation rate per a...

The accounting year of Fehintola Ltd. ends on 31st December every year. Pant and Machinery purchased on 1st January, Year 1 N600,000
Depreciation rate per anuum, 10%
Scrap value, N60,000. Using the straight line method, what is he net book value at the beginning of the year 3?

Answer Details

The net book value of an asset is the value of the asset as recorded in the accounting records, less the accumulated depreciation. To calculate the accumulated depreciation using the straight-line method, you subtract the scrap value from the cost of the asset and divide the result by the useful life of the asset in years. The depreciation expense for each year is the same amount, calculated as the cost of the asset minus the scrap value, divided by the useful life in years. For this question, the cost of the plant and machinery is N600,000, the scrap value is N60,000, and the useful life is 10 years. Therefore, the annual depreciation expense is (N600,000 - N60,000) / 10 = N54,000. At the beginning of year 3, the asset will have been depreciated for 2 years. The accumulated depreciation is therefore 2 * N54,000 = N108,000. The net book value is the cost of the asset minus the accumulated depreciation, which is N600,000 - N108,000 = N492,000. Therefore, the answer is N492,000.