AACE International AACE Certification CCP Question # 37 Topic 4 Discussion

Given Scenario:

You need to calculate the book value (BV) of the asset at the end of 5 years using straight-line depreciation.

The straight-line depreciation formula is: Annual Depreciation=Cost−Salvage ValueUseful Life\text{Annual Depreciation} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}Annual Depreciation=Useful LifeCost−Salvage Value​

Initial Cost: $80,000

Salvage Value: $0 (since there's no salvage value)

Useful Life: 25 years

Annual Depreciation: 80,00025=3,200\frac{80,000}{25} = 3,2002580,000​=3,200 per year

Book Value after 5 years:

Book Value=Cost−(5×Annual Depreciation)=80,000−(5×3,200)=80,000−16,000=64,000\text{Book Value} = \text{Cost} - (5 \times \text{Annual Depreciation}) = 80,000 - (5 \times 3,200) = 80,000 - 16,000 = 64,000Book Value=Cost−(5×Annual Depreciation)=80,000−(5×3,200)=80,000−16,000=64,000

Answer:A. $64,000