Vaughn’s inc. owns the following assets: asset cost salvage est. useful lifea $70,000 $7,000 10 yearsb 50,000 5,000 5 yearsc 82,000 4,000 12 years1. compute the composite depreciation rate and the composite life of vaughn’s assets.

10.79% and 8.53 years

Explanation:

For computing the  composite depreciation rate and the composite life of Vaughn’s assets, first we have to find out the depreciation expense which is shown below:

The formula is

= (Original cost - salvage value) ÷ (estimated useful life)

For A

= ($70,000 - $7,000) ÷ (10 years)

= ($63,000) ÷ (10 years)  

= $6,300

For B

= ($50,000 - $5,000) ÷ (5 years)

= ($45,000) ÷ (5 years)  

= $9,000

For C

= ($82,000 - $4,000) ÷ (12 years)

= ($78,000) ÷ (12 years)  

= $6,500

We know that

Composite depreciation rate equals to

= Total annual depreciation ÷ Total asset value

where,

Total annual depreciation = $6,300 + $9,000 + $6,500

                                           = $21,800

And, the total asset value = $70,000 + $50,000 + $82,000

                                           = $202,000

So, the composite depreciation rate would be

= $21,800 ÷ $202,000

= 10.79%

And, the composite life of Vaughn’s assets would be

= Total depreciable amount ÷ Total annual depreciation

where,

Total depreciable amount = $63,000 + $45,000 + $78,000

                                           = $186,000

So the composite life is

= $186,000 ÷ $21,800

= 8.53 years