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Equipment is purchased for $50,000. It is to be depreciated on a diminishing balance basis using a rate of 10%. How much will be charged for depreciation expense for year 3 of the machine’s life?$4,500$4,050$15,000$5,000

Question

Equipment is purchased for 50,000.Itistobedepreciatedonadiminishingbalancebasisusingarateof1050,000. It is to be depreciated on a diminishing balance basis using a rate of 10%. How much will be charged for depreciation expense for year 3 of the machine’s life?4,5004,0504,05015,000$5,000

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Solution

Depreciation on a diminishing balance basis means that each year's depreciation expense is based on the book value of the asset at the beginning of the year, not the original cost of the asset.

Here's how you calculate the depreciation expense for year 3:

  1. Year 1 depreciation: 10% of 50,000=50,000 = 5,000. So, the book value at the end of year 1 is 50,000−50,000 - 5,000 = $45,000.

  2. Year 2 depreciation: 10% of 45,000=45,000 = 4,500. So, the book value at the end of year 2 is 45,000−45,000 - 4,500 = $40,500.

  3. Year 3 depreciation: 10% of 40,500=40,500 = 4,050.

So, the depreciation expense for year 3 of the machine's life is $4,050.

This problem has been solved

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