Reducing Balance Depreciation Formula

Steps:

• Depreciation rate of 40% means the asset retains 60% of its book value each year.
• After two years, book value = purchase price × (0.6)^2 = purchase price × 0.36.
• Set book value equal to $3600: 0.36 × purchase price = 3600.
• Purchase price = 3600 / 0.36 = $10000.

Why C is correct:

• The reducing balance formula V = P × (1 - r)^n gives $10000 × 0.6^2 =$3600, matching the net book value after two years.

Why the others are wrong:

• A. $7056 × 0.36 =$2540, too low for the book value.
• B. $9216 × 0.36 =$3318, too low for the book value.
• D. $2250 × 0.36 =$810, too low for the book value.

Final answer: C