Determine the cost price of a farm equipment that has a salvage value of N500,000.00, a useful life of 10 years and an annual depreciation of N400,000.00.

Determine the cost price of a farm equipment that has a salvage value of N500,000.00, a useful life of 10 years and an annual depreciation of N400,000.00.

Answer Details

The cost price of a farm equipment can be calculated using the straight-line method of depreciation. This method assumes that the value of the equipment decreases by an equal amount each year over its useful life. To calculate the cost price, we can use the formula: Cost price = Salvage value + Total depreciation The salvage value of the equipment is given as N500,000.00. The annual depreciation is given as N400,000.00, and the useful life is 10 years. Therefore, the total depreciation over the useful life of the equipment is: Total depreciation = Annual depreciation x Useful life Total depreciation = N400,000.00 x 10 Total depreciation = N4,000,000.00 Substituting the values into the formula, we get: Cost price = Salvage value + Total depreciation Cost price = N500,000.00 + N4,000,000.00 Cost price = N4,500,000.00 Therefore, the cost price of the farm equipment is N4,500,000.00.