An asset purchased for $55 000 depreciates at a flat rate of 10% each year. What is the book value of the asset after 4 years?
To find the book value of the asset after 4 years, we need to calculate the depreciation for each year and subtract it from the original price.
Year 1 depreciation = $55,000 * 0.10 = $5,500
Book value after Year 1 = $55,000 - $5,500 = $49,500
Year 2 depreciation = $49,500 * 0.10 = $4,950
Book value after Year 2 = $49,500 - $4,950 = $44,550
Year 3 depreciation = $44,550 * 0.10 = $4,455
Book value after Year 3 = $44,550 - $4,455 = $40,095
Year 4 depreciation = $40,095 * 0.10 = $4,009.5
Book value after Year 4 = $40,095 - $4,009.5 = $36,085.5
The book value of the asset after 4 years is $36,085.5.
To calculate the book value of the asset after 4 years, we need to consider the depreciation rate of 10% per year.
The formula to calculate the depreciation in each year is:
Depreciation = Purchase Price * Depreciation Rate
Depreciation = $55,000 * 10%
= $55,000 * 0.1
= $5,500
Now, let's calculate the book value after each year:
Year 0 (Purchase Year):
Book Value = Purchase Price - Depreciation
= $55,000 - $0
= $55,000
Year 1:
Book Value = Previous Year's Book Value - Depreciation
= $55,000 - $5,500
= $49,500
Year 2:
Book Value = Previous Year's Book Value - Depreciation
= $49,500 - $5,500
= $44,000
Year 3:
Book Value = Previous Year's Book Value - Depreciation
= $44,000 - $5,500
= $38,500
Year 4:
Book Value = Previous Year's Book Value - Depreciation
= $38,500 - $5,500
= $33,000
Therefore, the book value of the asset after 4 years is $33,000.