Final answer:
The depreciation method likely used was the double-declining balance method, which results in higher depreciation costs in the earlier years of an asset's life, tapering off in later years and adjusted to account for the asset's salvage value.
Step-by-step explanation:
If depreciation in the third year amounted to $5,000, this suggests that the depreciation method used was the double-declining balance method. This method accelerates depreciation so that more depreciation is recognized in the earlier years of an asset's life. To confirm this, let's calculate the depreciation for each year.
The cost of the plant asset is $40,000, with a salvage value of $10,000, over a three-year life. Year one depreciation under the double-declining balance method would be: ($40,000 - $0) * (2/3) = $26,666.67. For year two: ($40,000 - $26,666.67) * (2/3) = $8,888.89. For year three, we are constrained by the salvage value, so the depreciation would be the remaining book value minus salvage value: ($40,000 - $26,666.67 - $8,888.89) = $4,444.44.
This discrepancy suggests an adjustment to $5,000 to avoid dipping below the salvage value, indicating that double declining balance depreciation is adjusted for the third year to align with the salvage value. This is a common practice with accelerated depreciation methods.
It should be noted that actual calculations could vary slightly based on specific accounting policies or partial years, but in a general sense, this method seems to fit the scenario provided. Without the specifics of the first and second year's depreciation values, one can still infer the method based on the description of the third year's amount, assuming the company rounded the final year's depreciation to match the salvage value.