Sheffield Corp. owns the following assets:
Asset |
Cost |
Salvage |
Estimated Useful Life |
|||
A |
$417000 |
$44000 |
10 years |
|||
B |
222000 |
23000 |
5 years |
|||
C |
495000 |
21000 |
12 years |
What is the composite depreciation rate of Sheffield's
assets?
11.2% |
10.3% |
12.9% |
14.0% |
Computation of composite depreciation rate is:
Composite depreciation rate = (Value of annual depreciation expense for all assets / Total cost of all assets) * 100
= ($116,600 / $1,134,000) * 100
= 0.103 * 100
= 10.3%
Hence, the composite depreciation rate is 10.3%, that is, the 2nd option is correct.
Working Note:
1.
Computation the value of annual depreciation for asset A is:
Value of annual depreciation for asset A = (Total cost of asset A - Salvage value of asset) / Estimated life
= ($417,000 - $44,000) / 10
= $373,000 / 10
= $37,300
Hence, the value of annual depreciation for asset A is $37,300.
2.
Computation the value of annual depreciation for asset B is:
Value of annual depreciation for asset B = (Total cost of asset B - Salvage value of asset) / Estimated life
= ($222,000 - $23,000) / 5
= $199,000 / 5
= $39,800
Hence, the value of annual depreciation for asset B is $39,800.
3.
Computation the value of annual depreciation for asset C is:
Value of annual depreciation for asset C = (Total cost of asset C - Salvage value of asset) / Estimated life
= ($495,000 - $21,000) / 12
= $474,000 / 12
= $39,500
Hence, the value of annual depreciation for asset C is $39,500.
4.
Computation the value of annual depreciation expense for all assets is:
Value of annual depreciation expense for all assets = Value of annual depreciation for asset A + Value of annual depreciation for asset B + Value of annual depreciation for asset C
= $37,300 + $39,800 + $39,500
= $116,600
Hence, the value of annual depreciation expense for all assets is $116,600.
5.
Computation of total cost of all assets is:
Total cost of all assets = Cost of asset A + Cost of asset B + Cost of asset C
= $417,000 + $222,000 + $495,000
= $1,134,000
Hence, the total cost of all assets is $1,134,000.
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