An asset has a life of 3 years. It costs $90 000 and has an expected residual value of $15 000. Using reducing- balance depreciation, what is the depreciation for Year 1?

Question

Quizplus · Accepted Answer

The reducing-balance method applies a constant depreciation rate to the declining book value of the asset. The rate can be calculated using the formula: 1 - (residual value / cost)^(1/life). Here, the rate is approximately 40.47%. Applying this rate to the initial cost of $90,000 gives a Year 1 depreciation of $40,471.

An Asset Has a Life of 3 Years