Question

A company purchased office equipment for $10,000 and estimated a residual value of $2,000 at the end of its 4-year useful life. The constant percentage to be applied against carrying amount each year if the double diminishing-balance method is used is:________

a. 20%.
b. 25%.
c. 50%.
d. 4%.

Answer 1

Using the double diminishing-balance method, the constant percentage applied each year is double the straight-line rate. For a 4-year useful life, the straight-line rate is 25%, so the double diminishing-balance method would use 50%.

Step-by-step explanation:

The question deals with calculating the rate of depreciation using the double diminishing-balance method for office equipment a company has purchased. This method involves applying a constant percentage which is double the straight-line depreciation rate against the carrying amount each year. The straight-line depreciation rate is calculated by dividing 100% by the useful life of the asset. For a 4-year useful life, the straight-line depreciation rate is 25% (100% ÷ 4). Thus, the double of this rate is 50% (25% × 2), which is the constant percentage to be applied each year under the double diminishing-balance method.

Therefore, the correct answer to the question "The constant percentage to be applied against carrying amount each year if the double diminishing-balance method is used is" is c. 50%.