A manufacturer buys a machine for $20,000. Its estimated life is five years with a scrap value of $10,000. Depreciation is charged on the straight-line method. What is the percentage rate of depreciation on an annual basis?
Answer: 10%
Explanation
To calculate the annual depreciation rate, you can use the following formula:
Annual Depreciation = (Cost - Scrap Value) / Estimated Life
= ($20,000 - $10,000) / 5
= $10,000 / 5
= $2,000 per year
To find the percentage rate of depreciation, divide the annual depreciation by the cost and multiply by 100:
Percentage Rate = (Annual Depreciation / Cost) x 100
= ($2,000 / $20,000) x 100
= 10%
So, the percentage rate of depreciation on an annual basis is 10%.
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