Burton Dee Company has purchased the site of a gravel pit for $10 million. Burton Dee must

Question:

Burton Dee Company has purchased the site of a gravel pit for $10 million. Burton Dee must now estimate the fair values of the assets acquired in the purchase in order to properly record the acquisition. One of the assets is a rock crushing system. This system includes a crusher, a conveyer belt, and a control room. Because rock crushing systems such as this are tailor made for the pit in which they are located, there is no practical way to directly determine a selling price for this particular system. However, Burton Dee can estimate how much it would cost to duplicate the system with new construction. That cost is $800,000. The existing system has been in use for seven years, and such systems are typically assumed to have a useful life of 16 years with a 5% .
Using these data, estimate the fair value of the rock crushing system.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...