Question

A company purchased office equipment for $30,000 and estimated a salvage value of $6,000 at the end of its 10-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is A.2% B. 10% C.15% D.20%

Answer 1

To calculate the constant percentage to be applied against the book value each year using the double-declining-balance method, you can follow these steps:

1. Determine the straight-line depreciation rate, which is (Cost - Salvage Value) / Useful Life:

Straight-line depreciation rate = ($30,000 - $6,000) / 10 years = $24,000 / 10 years = $2,400 per year.

2. The double-declining-balance method doubles this straight-line rate. So, multiply the straight-line rate by 2:

Double-declining-balance rate = $2,400 * 2 = $4,800 per year.

Now, to find the constant percentage applied against the book value each year, divide the double-declining-balance rate by the book value at the beginning of the year. The book value at the beginning of the year is the cost of the asset minus the accumulated depreciation.

At the start of year 1, the book value is the cost of the equipment, which is $30,000.

For year 1:

Constant percentage = (Double-declining-balance rate / Book value at the beginning of the year) * 100%

Constant percentage = ($4,800 / $30,000) * 100% = (0.16) * 100% = 16%

So, the constant percentage to be applied against the book value each year using the double-declining-balance method is 16%.

The correct answer is not among the options provided (A. 2%, B. 10%, C. 15%, D. 20%). It is 16%.

Step-by-step explanation: