Question

A plant asset has a cost of $24,000 and a residual value of $6,000. The asset has a threeyear life.

If depreciation in the third year amounted to $3,000, which depreciation method was used?

a. Straight-line
b. Declining-balance
c. Sum-of-the-years'-digits
d. Cannot tell from information given

Answer 1

The depreciation method used cannot be determined from the information given.

Step-by-step explanation:

The depreciation method used in this scenario can be determined by comparing the depreciation expense with the depreciation that would have been recorded under different methods. In this case, the depreciation of $3,000 in the third year is not the same as the straight-line method, which would be $6,000 ($24,000 - $6,000 = $18,000 / 3 years = $6,000 per year).

The depreciation expense is also not the same as the declining-balance method, which would involve a higher expense in the earlier years and a lower expense in the later years. The sum-of-the-years'-digits method results in a decreasing depreciation expense each year, which is also not the case here.

Therefore, based on the provided information, the most likely depreciation method used is cannot be determined from the information given.

Answer 2

It Sum-of-the -years'-digits method

Step-by-step explanation:

Depreciation Expense=[Remaining useful life of the asset÷ Sum of the year's digit )×Depreciable cost

Sum-of-the -years'-digits= 3+2+1= 6

Depreciable cost = $24,000- $6,000 = $18,000

Year 1 -Depreciation = [3/6] * $18,000

= $9,000

Year 2-Depreciation =[2/6] * $18,000

= $6000

Year 3-Depreciation =[1/6] * $18,000

= $3000

The sum of years’ digits method is a form of accelerated depreciation that is based on the assumption that the productivity of the asset decreases with the passage of time.