On January 1, 2016 Ballard Company spent $11,000 on an asset to improve its quality. The asset had been purchased on January 1, 2015 for $36,000. The asset had a $6,000 salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be the book value of the asset on January 1, 2019

$20,400

Explanation:

Depreciation is the systematic allocation of the cost of an asset to the income statement over the estimated useful life of that asset.

It is determined as the depreciable value of the asset over the estimated useful life of the asset where the depreciable value is the difference between the cost and salvage value of the asset

Where a cost is incurred that improves the asset, the cost is capitalized with the asset's already known.

Depreciation for 2015

= (36,000 - 6,000)/6

= $5,000

The net book value (carrying amount) at the start of 2016

= $36,000 - $5,000

= $31,000

Given that the company spent $11,000 on an asset to improve its quality,

new Carrying amount

= $31,000 + $11,000

= $42,000

This will be depreciated  over the remaining 5 years. Annual depreciation between 2016 and 2020

= ($42,000 - $6,000)/5

= $7,200

Between January 1 2016 and 1 January 2019 is  3 years

The book value of the asset on January 1, 2019

= $42,000 - 3($7,200)

= $42,000 - $21,600

= $20,400

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