A contractor purchases a truck for $75,000. After 5 years of use, the accumulated depreciation is $45,000. What is the truck's current book value?
Correct Answer
B) $30,000
Book value equals the original cost minus accumulated depreciation: $75,000 - $45,000 = $30,000. This represents the asset's remaining value on the company's balance sheet.
Why This Is the Correct Answer
Book value is calculated using the fundamental accounting equation: Original Cost - Accumulated Depreciation = Book Value. In this case, the truck was purchased for $75,000 and has depreciated by $45,000 over 5 years. The remaining book value of $30,000 represents what the asset is worth on the company's financial records, not its market value or replacement cost.
Why the Other Options Are Wrong
Option C: $45,000
This amount is too low and doesn't result from the proper book value calculation. It appears to be an arbitrary figure that doesn't relate to the given original cost and accumulated depreciation.
Option D: $15,000
This represents the original purchase price of the truck, not the current book value. The original cost doesn't account for the wear and tear or loss of value that has occurred over the 5 years of use.
Memory Technique
Think 'Book value = what's LEFT on the books' - Original price minus what's been written off (accumulated depreciation) equals what's left.
Reference Hint
Look up 'Asset Depreciation' or 'Book Value Calculations' in the Business and Finance Management chapter of your contractor reference manual.
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