A machine costing $100,000 has a useful lifetime of 15 years with an estimated scrap value of $10,000.What is the book value of the machine at the end of the third year under the constant percentage method of depreciation? (Answer to the nearest dollar)

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Quizplus · Accepted Answer

The constant percentage method of depreciation, also known as the declining balance method, involves calculating depreciation based on a fixed percentage of the book value at the beginning of each year. The formula to find the depreciation rate is: 1 - (Scrap Value / Cost)^(1 / Useful Life). Here, it's 1 - ($10,000 / $100,000)^(1 / 15) = 1 - (0.1)^(1/15) ≈ 0.129. To find the book value at the end of the third year, we apply this rate three times to the initial cost: $100,000 * (1 - 0.129)^3 ≈ $63,096.

A Machine Costing $100,000 Has a Useful Lifetime of 15