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Chapter 1: Problem 15

An office building worth \(\$ 1\) million when completed in 2005 is being depreciated linearly over 50 yr. What will be the book value of the building in 2010 ? In \(2015 ?\) (Assume the scrap value is \(\$ 0 .\) )

Short Answer

Expert verified
The book value of the building in 2010 is \(\$800,000\) and in 2015, it is \(\$600,000\).

Step by step solution

01

Find the annual depreciation amount

To find the annual depreciation amount, we will divide the initial cost of the building by its total depreciation period (in years). Annual depreciation amount = \(\frac{Initial \thinspace cost }{Depreciation \thinspace period} \)
02

Calculate the depreciation rate

The depreciation rate is the annual depreciation amount expressed as a percentage of the initial cost of the building. It is a constant value. Depreciation rate = \(\frac{Annual \thinspace depreciation \thinspace amount}{Initial \thinspace cost}\) 脳 100
03

Calculate the book value in 2010

In 2010, five years have passed since the building's initial completion. We will multiply the annual depreciation amount by the number of years passed. Total depreciation in 2010 = Annual depreciation amount 脳 5 Then, we'll subtract the total depreciation in 2010 from the initial cost to get the book value in 2010. Book value in 2010 = Initial cost - Total depreciation in 2010
04

Calculate the book value in 2015

In 2015, ten years have passed since the building's initial completion. We will multiply the annual depreciation amount by the number of years passed. Total depreciation in 2015 = Annual depreciation amount 脳 10 Then, we'll subtract the total depreciation in 2015 from the initial cost to get the book value in 2015. Book value in 2015 = Initial cost - Total depreciation in 2015

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