Problem 11-1 Jain Mart is to depreciate an asset bought for $500,000 using the SOYD method over a life of 8 years. If the depreciation charg

Problem 11-1 Jain Mart is to depreciate an asset bought for $500,000 using the SOYD method over a life of 8 years. If the depreciation charges in year 3was $80,000, determine the salvage value used in computing the depreciation charges in year 3. A. $50,000 B. $20,000 C. $1

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  1. Answer:

    B. $20,000

    Explanation:

    Depreciation in year 3 = $80,000

    According to the sum of the Years’ Digits Depreciation, the depreciation for an asset bought for $500,000 and an expected life of 8 years, at year 3, is given by:

    [tex]D_{y=3}=\$80,000 = \frac{8-2}{8+7+6+5+4+3+2+1}*(\$500,000-Salvage) \\Salvage = 6*(\frac{\$500,000}{6} -\$80,000)\\Salvage=\$20,000[/tex]

    The salvage value used in computing the depreciation charges is $20,000.

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