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

Solution:-

(A). Straight Line method:

20,000 - 2000 = 18000 / 5years

Thus, each year depreciation = $ 3600 every year

Year	Beginning-of-year Book Value ($)	Annual Depreciation ($)	End-of-Year Book Value ($)
1	20,000	3600	16,400
2	16,400	3600	12,800
3	12,800	3600	9,200
4	9,200	3600	5,600
5	5,600	3600	2,000

(B) 5 year MACRS depreciation rates are 20%, 32%, 19.2%, 11.52%, 11.52%

Years	Asset Cost ($)	Depreciation Rate (%)	Annual Depreciation ($)	End-of-Year Book Value ($)
1	20,000	20%	4000	16000
2	20,000	32%	6400	9600
3	20,000	19.2%	3840	5760
4	20,000	11.52%	2304	3456
5	20,000	11.52%	2304	1152
6	20,000	5.76%	1152	0