Question

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%

Answer 1

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.