Question

Pat Brown bought a Chevy truck for $28,000 with an estimated life of 5 years. The residual value of the
truck is $3,000. Assume a straight-line method of depreciation. (a) What will be the book value of the
truck at the end of year 3? (b) If the Chevy truck was bought the first year on April 12, how much
depreciation would be taken the first year?

Answer 1

• Truck would be worth $13,000 in 3 years.
• The depreciation amount would be $3,602.73 for the first year if the truck was bought April 12.

First thing you need to do is to find out the yearly depreciation amount:

Annual depreciation = (Cost of truck - Residual value) / Useful life

= (28,000 - 3,000) / 5

= $5,000

At the end of 3 years, the value of the truck would be:

= Cost of truck - (Depreciation amount x number of years)

= 28,000 - (5,000 x 3)

= $13,000

If the truck was bought on April 12, only depreciation by the number of days left in that year:

= Annual depreciation / Number of days in a year x Number of days left in the first year

= 5,000 / 365 x 263

= $3,602.74

In conclusion, the truck will be worth $13,000 in 3 years.

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