Ex 3-19 Determining fixed asset’s book value

The balance in the equipment account is $1,375,000, and the balance in the accumulated depreciation—equipment account is $725,000.

a. What is the book value of the equipment?

b. Does the balance in the accumulated depreciation account mean that the equipment’s loss of value is $725,000? Explain.

Answer:
a.  $650,000 ($1,375,000 – $725,000)


b.  No. Depreciation is an allocation of the cost of the equipment to the periods benefiting from its use. It does not necessarily relate to value or loss of value.