What is the book value of the forklift after 3 years given the above assumptions?

What is the book value of the forklift after 3 years given the above assumptions?

• A. $8,000
• B. -$8,000
• C. $6,000
• D. -$6,000

Answer: (C)

Book value is the asset’s cost minus accumulated depreciation. Under straight-line depreciation, depreciation per year equals (cost minus salvage value) divided by the useful life. With the given assumptions, the forklift costs 15,000 and has no salvage value with a 5-year life. So each year depreciation is (15,000 − 0) / 5 = 3,000. After three years, accumulated depreciation is 3,000 × 3 = 9,000. Subtracting from the original cost gives 15,000 − 9,000 = 6,000. Therefore, the book value after three years is 6,000. If salvage or a different life were involved, the numbers would change accordingly.

Book value is the asset’s cost minus accumulated depreciation. Under straight-line depreciation, depreciation per year equals (cost minus salvage value) divided by the useful life.

With the given assumptions, the forklift costs 15,000 and has no salvage value with a 5-year life. So each year depreciation is (15,000 − 0) / 5 = 3,000. After three years, accumulated depreciation is 3,000 × 3 = 9,000. Subtracting from the original cost gives 15,000 − 9,000 = 6,000. Therefore, the book value after three years is 6,000. If salvage or a different life were involved, the numbers would change accordingly.