Homework Answers
Asset purchased on July 5, $ 750,000. Applying Straight Line Method of Depreciation formula (i.e.) Asset value less salvage value divided by useful life of asset. Salvage value is not given and hence assumed to be 0. useful life of asset 4 years.
Depreciation per annum = (750,000 less 0) divided by 4 = $ 187,500 per annum.
Always books will be prepared for financial year starting January through December. But here asset has been purchased only on July; hence take only 6 months of depreciation (i.e.) 187500/12*6 = $ 93,750.
Thus, Depreciation for Year 1 = $ 93,750
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c. is the correct answer. (i.e.) Depreciation charge closest to $ 49,087 and Book value closest to $ 122,717.
Depreciation schedule as per MACRS table as below:
| Year of depreciation | Asset value | Depreciation rate as per MACRS Table | Depreciation per year | Book value at end of the year |
| Year 1 | 550,000 | 14.29 | 78,595 | 471,405 |
| Year 2 | 550,000 | 24.49 | 134,695 | 336,710 |
| Year 3 | 550,000 | 17.49 | 96,195 | 240,515 |
| Year 4 | 550,000 | 12.49 | 68,695 | 171,820 |
| Year 5 | 550,000 | 8.93 | 49,115 | 122,705 |
| Year 6 | 550,000 | 8.92 | 49,060 | 73,645 |
| Year 7 | 550,000 | 8.93 | 49,115 | 24,530 |
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