Question

Willis Limo Service purchased three used assets with the following characteristics: Residual Asset Cost Value Life Limo $12,000 $2,000 10 years Van 6,800 1,200 4 years Photocopier 1,500 250 5 years Assuming Willis uses straight-line depreciation, the composite depreciation rate is

Answer 1

Since Willis uses the straight-line depreciation, the composite depreciation rate will be 13.05%

Using the straight-line depreciation method:

Photocopier = ($12000 - $2000) / 10

Photocopier = $1000

Computer = ($6800 - $1200) / 4

Computer = $1400

Typewriter = ($1500 - $250) / 5

Typewriter = $250

Net depreciation = Photocopier amount + Computer amount + Typewriter amount

Net depreciation = $1000 + $1400 + $250

Net depreciation = $2650

Composite rate = Net depreciation*100 / Accumulated cost of asset)  

Composite rate = $2650*100 / ($12000 + $6800 + $1500)

Composite rate = $265,000 / $20,300

Composite rate = 13.0541872

Composite rate = 13.05%

In conclusion, since Willis uses the straight-line depreciation, the composite depreciation rate will be 13.05%

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