00:02
Let's analyze the impact of the described events on abc's financials.
00:08
So number one impact on net income in year one.
00:20
So in year one abc purchased purchased delivery truck for $40 ,000.
00:37
So however, there is no impact on net income.
00:52
In year one as depreciation.
00:59
Does not occur.
01:06
Until the asa is put to use.
01:18
So net income remains unaffected.
01:30
Unaffected.
01:34
Then number two that is impact on cash flow in year two.
01:49
So assuming straight line depreciation the annual depreciation expenses calculated.
01:54
Sorry, sorry.
01:56
In year two, there is no cash flow impact.
02:03
No cash flow.
02:08
Impact due to the purchase of the truck.
02:20
So cash flow is affected when depreciation expense are recognized with start after the truck is put into service.
02:27
Now number three that is year three depreciation expense.
02:36
So assuming straight line depreciation, the annual depreciation expenses calculated as follows annual depreciation expenses equal to cost.
02:55
Subtracted from salvage value.
03:01
Divided by useful life.
03:09
Which is equal to putting the value $40 ,000 subtracted from dollar 5 ,000 divided by five years.
03:21
So evaluating it we get dollar 7 ,000.
03:29
Then number four that is net book value of the of the delivery truck after three years.
03:50
So after three years, the accumulated depreciation is the sum of year one year two and year three depreciation.
03:58
So accumulated depreciation is equal to dollar 7 ,000.
04:13
That is year three added to dollar 7 ,000...