Question

An asset is depreciated using the declining-balance method with a rate of depreciation of 8% per half year. The asset was bought for $10 000.What is the salvage value of the asset after 5 years?

Answer 1

Salvage value is obtained by the following formula:

`S\text{ = P(}1-i)^Y`

Where:

S = salvage value

P = original price

i = nominal depreciation rate

Y = age in years

So:

P = 10000

i = 0.08 x 2 = 0.16

Y = 5

Then the salvage value will be:

`S\text{ = 10000}(1-0.16)^{5\text{ }}=\text{ }4182`

The salvage value of the asset after 5 years will be $4182.12