Question

A chef purchases a set of fridge freezers for his kitchen worth 12,500 and a decision was made to depreciate it by 6% each year. How much would the fridge freezers depreciate over three years?

Answer 1

The fridge freezers would depreciate by a total of $2,117.70 over three years, using a yearly depreciation rate of 6% calculated on the diminishing balance.

Step-by-step explanation:

To calculate how much the fridge freezers would depreciate over three years at a rate of 6% per year, we use the formula for depreciation: the initial value of the asset minus the value lost each year. The value lost each year is found by multiplying the initial value by the depreciation rate.

For the first year, the depreciation is 0.06 × $12,500, which equals $750. Therefore, the value at the end of the first year is $12,500 - $750 = $11,750.

For the second year, we depreciate the new value of $11,750 by 6%, which is $705. The value at the end of the second year is $11,750 - $705 = $11,045.

For the third year, the depreciation of the now $11,045 by 6% is $662.70. Thus, the value at the end of the third year is $11,045 - $662.70 = $10,382.30.

The total depreciation over the three years is the initial value minus the value at the end of the third year, which is $12,500 - $10,382.30 = $2,117.70.