Question goes like this: Over the last year, accumulated depreciation increase from 340K to 370K. Purchased no capital assets during the period, but had PPE with book value of 400K. Average age is easy: 370k/30k = 12.33 But my question is for the depreciable life. I thought it should be just 400k/30k but the answer explains that it is the gross ending investment of (400K + 370K)/30K. This contradicts the actual explanation in Schweser page 187 that says that the avg depreciable life should be 300k/30k. Anyone has any ideas? I’m stumped. There’s no errata posted on this too.
This caught me out a bit too!! By book value, i think they meant net book value (i.e. depreciation has already been taken into account.) Therefore, the total value of fixed assets is 400 + any accumulated deprecation. Basically, it’s a really badly worded question by Schweser!
Ah I see that make sense. Yes of course book value means that the accumulated depreciation has been factored in, thus you have to add back the accumulated depreciation. Thus the answer (400k+370K)/30K is correct. Also I had a typo on the last numbers on my first post. I meant 400K/30K not 300K/30K. Too bad you can’t edit post in this forum.