Solution to Contest #11

Adam is an accountant. His client wants him to use this depreciation schedule for a certain asset:

In the first year, the asset is depreciated 20% from its original price. In subsequent years, the asset is depreciated by 8% of its book value.

What is the book value of a $109,000 asset after its fourth year?

The asset is bought for $109,000. In its first year, the depreciation is $109,000 x 0.20 = $21,800. The book value of asset is $109,000 - $21,800 = $87,200.

In the second year, the depreciation is $87,200 x 0.08 = $6,976. The book value of asset is $87,200 - $6,976 = $80,224.

In the third year, the depreciation is $80,224 x 0.08 = $6,418. The book value of asset is $80,224 - $6,418 = $73,806.

In the fourth year, the depreciation is $73,806 x 0.08 = $5,904. The book value of asset is $73,806 - $5,904 = $67,566.

So the correct answer is $67,902.