A machine bought for N7,000 was estimated to have a useful life of 4 years and a scrap value of N500. What is the Net book value of the machine at the end o...

A machine bought for N7,000 was estimated to have a useful life of 4 years and a scrap value of N500. What is the Net book value of the machine at the end of the second year, Using the straight line method

Answer Details

The straight-line method of depreciation is a simple method to calculate the depreciation expense. The formula for straight-line depreciation is: Depreciation expense = (Purchase price - Scrap value) / Useful life In this case, the purchase price is N7,000, the scrap value is N500, and the useful life is 4 years. Substituting these values into the formula, we get: Depreciation expense = (7,000 - 500) / 4 = 1,625 This means that the machine loses N1,625 worth of value each year. To calculate the net book value of the machine at the end of the second year, we need to subtract the accumulated depreciation from the original cost of the machine. Since the machine has a useful life of 4 years, the accumulated depreciation after 2 years will be: Accumulated depreciation = Depreciation expense x number of years = 1,625 x 2 = N3,250 Therefore, the net book value of the machine at the end of the second year is: Net book value = Cost of machine - Accumulated depreciation = 7,000 - 3,250 = N3,750 Therefore, the correct answer is option D: N3,750.