A plant asset has a cost of $24,000 and a salvage value of $6,000.The asset has a three-year life.If depreciation in the third year amounted to $3,000, which depreciation method was used?

Question

Quizplus · Accepted Answer

Using the formula for sum-of-years'-digits depreciation:

Depreciation for each year = [(Number of years left in asset life) ÷ (Sum of the years)] × (Cost of asset – Salvage value)

For a three-year life asset, the sum of the years is:

1 + 2 + 3 = 6

In the third year, the number of years left in the asset life is:

3 – 2 = 1

Depreciation for the third year is therefore:

(1 ÷ 6) × ($24,000 - $6,000) = $3,000

Therefore, the sum-of-the-years'-digits depreciation method was used.

A Plant Asset Has a Cost of $24,000 and a Salvage