A radiologist plans to retire in the next two to five years. He buys a new $20,000 X-ray machine that is expected to last ten years. His accountant recommends a depreciation method that reduces the value by 30% each year ($20,000 to $14,000 to $9,800 to $6,860, etc.). Why would this be recommended instead of a simple $2,000 per year depreciation?
What will be an ideal response?
When the radiologist retires, he will sell the X-ray machine separately or with the facility. Medical equipment, like a new car, loses much of its resale value in the first few years. A two-year-old X-ray machine will be worth only about half the price paid when new, but straight-line depreciation would give an incorrectly high value of 80% of new.
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