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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 the carrying amount be at the end of year 3? A. $40500 B. $50 000 C. $36450 D. $45000

Question

Equipment is purchased for 50000.Itistobedepreciatedonadiminishingbalancebasisusingarateof1050 000. It is to be depreciated on a diminishing balance basis using a rate of 10%. How much will the carrying amount be at the end of year 3? A. 40500 B. 50000C.50 000 C. 36450 D. $45000

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Solution

The diminishing balance method of depreciation is a method of accelerated depreciation. This means that the asset will depreciate more in the early years of the asset's life and less in the later years.

Here's how to calculate the carrying amount at the end of year 3:

  1. Year 1 Depreciation: 50,000∗1050,000 * 10% = 5,000. So, the carrying amount at the end of year 1 is 50,000−50,000 - 5,000 = $45,000.

  2. Year 2 Depreciation: 45,000∗1045,000 * 10% = 4,500. So, the carrying amount at the end of year 2 is 45,000−45,000 - 4,500 = $40,500.

  3. Year 3 Depreciation: 40,500∗1040,500 * 10% = 4,050. So, the carrying amount at the end of year 3 is 40,500−40,500 - 4,050 = $36,450.

So, the answer is C. $36450.

This problem has been solved

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