Kenya LtdAcquires a New Machine

question 36

Multiple Choice

Kenya Ltd.acquires a new machine.It is comprised of two different components (A and B) that are expected to be overhauled at different times.
The acquisition costs of the machine are as follows:
Component A is expected to have a useful life of 5 years and a residual value of $20,000 before the first major overhaul is required.Component B is expected to have a useful life of 7 years and a residual value of $15,000 before its first overhaul.Kenya uses straight-line depreciation for all its equipment.At the beginning of year 6, component A undergoes a major overhaul at a cost of 100,000.The work is expected to extend its life by 3 years, but the residual value will then be zero.What is the net book value of component A one year after the overhaul?

• A)$120,000
• B)$80,000
• C)$66,667
• D)$40,000

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Definitions:

Office Furniture

Tangible items such as desks, chairs, and filing cabinets that are used in an office environment.

Cash

A company's currency or currency equivalents that can be accessed immediately or at short notice.

Expenses

Costs incurred in the process of generating revenue, typically categorized into operating and non-operating expenses.

Revenues

The total amount of money received or accrued by a business from its normal business operations.