Question

The following information is for the financial year 1 March 2024 – 28 February 2025 during a time of low inflation. Calculate the book value for the asset using the straight-line method. Assume that the asset was bought at the beginning of the given year.



Farm asset

Purchase date/year

Cost price

Replacement value

Age

Expected lifetime (years)

Irrigation main line

2015

R650 000

R850 000

10

20

a.
R510 000

b.
R260 000

c.
R590 000

d.
R325 000

e.
None of the above

Answer 1

To calculate the book value of the asset using the straight-line method, we need the following information:

1. **Cost Price of the Asset**: R650,000
2. **Expected Lifetime of the Asset**: 20 years
3. **Age of the Asset**: 10 years

The straight-line depreciation method formula is:

\[
\text{Depreciation Expense per Year} = \frac{\text{Cost Price}}{\text{Expected Lifetime}}
\]

Calculating the annual depreciation:

\[
\text{Depreciation Expense per Year} = \frac{R650,000}{20} = R32,500
\]

Next, we calculate the total depreciation for the asset over its age of 10 years:

\[
\text{Total Depreciation} = \text{Depreciation Expense per Year} \times \text{Age} = R32,500 \times 10 = R325,000
\]

Finally, we calculate the book value of the asset:

\[
\text{Book Value} = \text{Cost Price} - \text{Total Depreciation} = R650,000 - R325,000 = R325,000
\]

Therefore, the book value for the asset is **R325,000**.

The correct answer is **d. R325,000**.