What is the net book value of component A

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Problem - Peru 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: $198,000

Component B: $240,000

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 ?rst overhaul. Peru uses straight-line depreciation for all its equipment. At the beginning of year 0, 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) $00,657

d) $40,000

Reference no: EM132862897

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