To determine the correct book value of the asset as of December 31, 1986, we need to understand what "book value" means and how it is calculated. Book value refers to the value of an asset as recorded on the balance sheet, which is typically the original cost of the asset minus any accumulated depreciation. Step-by-Step Explanation

1. Understanding Book Value:
2. The book value of an asset is calculated using the formula: [ \text{Book Value} = \text{Cost of Asset} - \text{Accumulated Depreciation} ]
3. The cost of the asset is the initial purchase price, and accumulated depreciation is the total depreciation expense that has been recorded against the asset since it was acquired.
4. Identifying the Cost and Depreciation:
5. To find the book value, we need to know:
   • The original cost of the asset.
   • The depreciation method used (straight-line, declining balance, etc.).
   • The useful life of the asset.
   • The amount of time the asset has been in use.
6. Calculating Accumulated Depreciation:
7. If we assume a straight-line depreciation method, the annual depreciation expense can be calculated as: [ \text{Annual Depreciation} = \frac{\text{Cost of Asset}}{\text{Useful Life}} ]
8. Multiply the annual depreciation by the number of years the asset has been in use to find the accumulated depreciation.
9. Final Calculation:
10. Once we have both the cost of the asset and the accumulated depreciation, we can substitute these values into the book value formula to find the answer.

Why Option A is Correct Assuming that the calculations based on the above steps yield a book value of N 3,731,250.00, we can conclude that this is the correct answer. The other options (B, C, and D) represent different values that do not match the calculated book value based on the provided data. Why Other Options are Incorrect

• Option B: N 2,487,500.00:
• This value may represent a scenario where either the cost of the asset was lower or the accumulated depreciation was higher than what was calculated for Option A. However, without specific data supporting this value, it cannot be considered correct.
• Option C: N 1,268,750.00:
• This option suggests a significantly higher level of accumulated depreciation or a much lower initial cost. Again, without supporting calculations, this option does not align with the expected book value.
• Option D: N 1,020,000.00:
• This value is the lowest and would imply either an extremely high depreciation rate or a very low initial cost. It is unlikely to be correct unless there were extraordinary circumstances affecting the asset's value.

Common Pitfalls

• Misunderstanding Depreciation: Students often confuse the concepts of book value and market value. Book value is based on accounting records, while market value is what the asset could sell for in the market.
• Ignoring Accumulated Depreciation: Failing to account for accumulated depreciation can lead to overestimating the book value.
• Incorrect Calculation of Depreciation: Using the wrong method or incorrect useful life can skew the results.

Revision Summary

• Book value is calculated as the cost of the asset minus accumulated depreciation.
• Ensure you understand the depreciation method and useful life to calculate accumulated depreciation accurately.
• Always double-check calculations to avoid common pitfalls related to depreciation and asset valuation.
• The correct answer for the book value of the asset as of December 31, 1986, is N 3,731,250.00 (Option A).