Question

11.2 Some special handling devices can be obtained for $20,000. At the end of 5 years, they can be sold for $2000. Computer the depreciation schedule for the devices using the following methods: a) Straight-line depreciation b) MACRS depreciation

Answer 1

Straight line depreciation: • Depreciation per year = (Cost – Selling cost) /n • Depreciation per year = (20000 - 2000)/5 = $3600 per year The depreciation schedule is below: | | Year 1 3600 3 Book Value at the beginning Depreciation Book Value at the end | 20000 16400 16400 3600 12800 12800 3600 9200 9200 3600 5600 5600 3600 2000 MACRS depreciation The rates applicable to MACRS 5-year property are: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76% • In MACRS depreciation, cost of selling the asset is not taken into account The depreciation schedule is below: Year Depreciation ase Depreciation rate Depreciation amount Book Value at start Book value at end 20000 20 4000 16000 13600 20000 32 6400 13600 16160 20000 19.2 3840 16160 17696 20000 11.52 2304 17696 17696 20000 11.52 2304 17696 18848 20000 L 5.76 1152 18848 6 Depreciation amount = Depreciation rate x Value of asset Book value = Value - Depreciation amount