A company purchased a truck on March 1, 2007 at a cost of $70,000. The truck had an estimated useful life of 5 years and an estimated salvage value of $10,000. The company uses the straight-line method of depreciation. Determine the book value of the truck on December 31, 2011

$12,000

Explanation:

The formula for depreciation expense, using straight line method is;

= (Cost - Scrap value) / life time

Give that;

Cost = $70,000

Scrap value = $10,000

Life time = 5 years

= ($70,000 - $10,000) / 5

= $60,000 / 5

= $12,000.

Therefore, book value on December 31, 2011 would be;

= $70,000 - $12,000 × (4 + 10/12)

= $70,000 - $58,000

= $12,000

• Note that we arrived at the value of 10 because March to December is 10 months.

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