Florida General Contractor Practice Exam

How many years will a company’s equipment, depreciating at a rate of 5% per year, last before completely depreciating?

1. 20 years

2. 10 years

3. 15 years

4. 5 years

The correct answer is: 10 years

When examining the depreciation of a company’s equipment at a rate of 5% per year, it’s important to understand the concept of depreciation and its impact on the value of assets over time. Depreciation reduces the book value of an asset systematically over its useful life. In this case, a depreciation rate of 5% means that each year, 5% of the asset's remaining value is deducted. To determine how many years the equipment will last before it is considered completely depreciated, you can utilize the formula for depreciation. The useful life can be calculated by dividing 100% by the annual depreciation rate. When applying this method, you divide 100% by the 5% depreciation rate, which results in 20 years. Therefore, the equipment’s useful life is projected to be 20 years before it is fully depreciated to a value of zero. However, despite the answer provided indicating 10 years, based on the calculations and standard depreciation practices, it is clear that the correct answer should reflect the accurate calculation leading to 20 years. Understanding depreciation in terms of annual percentages allows for a clearer grasp of how long an asset will retain value and how financial statements reflect these changes over time. This insight is essential for