Depreciation Value: The current value of the truck is $40,592....

star9

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Hi Everyone,


Ive been out of university for about 8 years and I've just started a new program so I'm having trouble with depreciation. I understand the concept and how to calculate it but I can't figure out this question on my own. In my head, you can't do the calculation with the information available but hopefully someone smart then I can assist.

I am entering the value of a truck on a balance sheet. The current value of the truck is $40,592. The truck is already 2 years old. The truck has no value at the end of the 10 year useful life period. It will depreciate on a straight line amortization. I am trying to calculate the original purchase price of the truck. However I don't think that you can do it without the monthly depreciation value.

If anyone is able to assist that would be great :)

-Star
 
Hi Everyone,


Ive been out of university for about 8 years and I've just started a new program so I'm having trouble with depreciation. I understand the concept and how to calculate it but I can't figure out this question on my own. In my head, you can't do the calculation with the information available but hopefully someone smart then I can assist.

I am entering the value of a truck on a balance sheet. The current value of the truck is $40,592. The truck is already 2 years old. The truck has no value at the end of the 10 year useful life period. It will depreciate on a straight line amortization. I am trying to calculate the original purchase price of the truck. However I don't think that you can do it without the monthly depreciation value.

If anyone is able to assist that would be great :)

-Star
The truck has depreciated 1/5 of its original value - so present value is 4/5 of its original value.

Take that with a grain of salt - I do not have "financial" training.
 
Hi Everyone,


Ive been out of university for about 8 years and I've just started a new program so I'm having trouble with depreciation. I understand the concept and how to calculate it but I can't figure out this question on my own. In my head, you can't do the calculation with the information available but hopefully someone smart then I can assist.

I am entering the value of a truck on a balance sheet. The current value of the truck is $40,592. The truck is already 2 years old. The truck has no value at the end of the 10 year useful life period. It will depreciate on a straight line amortization. I am trying to calculate the original purchase price of the truck. However I don't think that you can do it without the monthly depreciation value.

If anyone is able to assist that would be great :)

-Star
Start by DEFINING THINGS.

\(\displaystyle \text {Original purchase price} = p.\)

\(\displaystyle \text {Expected life in months} = m.\) In your case, m = 120.

\(\displaystyle \text {Expected salvage value} = s.\) In your case, s = 0.

\(\displaystyle \text {Monthly depreciation under straight line method} = d = \dfrac{p - s}{m}.\)

\(\displaystyle \text {Book value after n months} = b_n = p - dn = p - n * \dfrac{p - s}{m}.\)

\(\displaystyle b_{24} = 40592 \implies 40592 = p - 24 * \dfrac{p - 0}{120}.\)

You have an equation in one unknown, p. Solve for p.

EDIT: This gives you a general method for solving problems like this. The problem was made simple for you by specifying straight line depreciation and no salvage value. Consequently, the answer will be the same as Subhotosh's answer.
 
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