Question

A plant asset has a cost of $43600 and a salvage value of $10900. The asset has a three-year life. If depreciation in the third year amounted to $5450, which depreciation method was used

Answer 1

Answer:

c. Sum-of-the-year's digits

Explanation:

As the asset has a three year life,

So, the sum of the digits is

= 3 + 2 + 1

= 6

Now  

Depreciation expense for year 3 is

= (Cost of the plant - salvage value) × 1 ÷ total life

= ($43,600 - $10,900) × 1 ÷ 6

= $5,450

Hence, the sum of the year digits depreciation method is used