Final answer:
The composite depreciation rate is calculated by taking the depreciation base (cost minus salvage value) and dividing it by the annual depreciation. It's used to ascertain the lifespan of an asset in accounting terms. Related concepts include the R/P ratio and the rule of 70 for estimating resource lifespans and investment doubling times.
Step-by-step explanation:
The composite depreciation rate can be determined by dividing the depreciation base by the depreciation per year. Depreciation base generally refers to the cost of an asset minus its salvage value, which is spread over the useful life of the asset. For example, let's assume the cost of an asset is $1,000, its salvage value at the end of its useful life is $100, and it has a useful life of 9 years. The depreciation base would be $1,000 - $100 = $900. If this asset is depreciated evenly over its useful life (straight-line depreciation), the annual depreciation would be $900 / 9 years = $100 per year. Therefore, the composite depreciation rate would be the depreciation base ($900) divided by the depreciation per year ($100), which results in a rate of 9 years.
Additionally, concepts such as the R/P ratio (Resource/Production) can be used to estimate the remaining time for a resource by dividing the total remaining resource by the annual production rate. The value established in the base year can help interpret data over different periods by indicating relative measures to that base year, where the base year value is given as 100, making comparisons over time more intuitive.
The rule of 70 is another useful tool to estimate the doubling time for investment or resource depletion using a simple formula. In this context, if the multiplicative factor, M, is set to 2, and applying the formula for interest accumulation, one can derive an approximate number of years until resources or investments double in value.