5) A used machine, which had an initial cost of $70,000, was purchased by Compan

Question

5) A used machine, which had an initial cost of $70,000, was purchased by Company A for S50,000. The company expects to depreciate the machine over a five-year period and then sell it for $10,000. According to the straight line method, the depreciation charge in year two is nearest Table A-1 3-6-.7-,10-16-,and 20-Year Property Half-Year Convention Depreeiation rate for recovery peried D-year 000% 500% 33 33% 44.45 2000% 1429% 3 750% 7 219 .67 2 11.52 9 22 7.70 6.93 1.52 93 .713 7.37 6 55 655 5. 76 892 6 23 5 90 5.285 7 10 6 55 5 90 4 461 5.91 5 90 6.91 5.90 4 462 4 461 4 462 4 401 4.462 3 28 13 15

Explanation / Answer

Under straight-line method,

Annual depreciation in any year = (Cost (Valued at purchase price) - Salvage value) / Useful life

= $(50,000 - 10,000) / 5 = $40,000 / 8

= $5,000

Annual depreciation in year 2 = $5,000

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