Answer :
2% is the annual rate of depreciation as indicated by the market.
First, we have to determine the value of the structure since the land can never be depreciated.
The cost of the old property is given as $240,000 and the cost of the lot is given as $100,000. Therefore, the value of structure can be calculated as,
The useful life of an asset= Cost of property-Cost of lot
=240,000$-100,000$
=140,000
Therefore, the residual value is 140,000$
By using straight-line type depreciation, since the building costs $200,000(cost of asset) it can be determined as,
Here, Depreciation= Cost of an Asset – Residual Value/Useful life of an Asset
$200,000-$140,000
=60,000
So, the building is depreciated by $60,000 since it was built. Now, this is equated per year as the year given is 20.
Therefore, Annual depreciation amount=depreciation value/year
=60,000/20
=3000
So, $3000 is the annual depreciation but here we have to find the annual rate of depreciation and it can be determined by dividing the annual depreciation by the value of the structure. That is,
Annual rate of depreciation = Annual depreciation amount/cost value of structure. That is,
3000/140,000
=0.02
Therefore it is calculated by the market indication as a 2% annual rate of depreciation.
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