An asset was purchased for $70,000, has a salvage value of $10,000, and has a us
ID: 2462909 • Letter: A
Question
An asset was purchased for $70,000, has a salvage value of $10,000, and has a useful life of 10 years. If the asset is placed in service on May 1 {the company’s fiscal year runs from January 1 to December 31}, what is its straight line depreciation charge for the first year of service? What is the depreciation charge for year five of its useful life using MACRS depreciation and given it is a GDS 10-year property? (see attached schedule)
MACRS Depreciation for Personal Property: Half-year Convention
Applicable Percentage for GDS Property Class
Recovery Year
3-year
Property
5-year
Property
7-year
Property
10-year
Property
15-year
Property
20-year
Property
1
2
3
33.33
44.45
14.81
20.00
32.00
19.20
14.29
24.49
17.49
10.00
18.00
14.40
5.00
9.50
8.55
3.750
7.219
6.677
4
5
6
7.41
11.52
11.52
5.76
12.49
8.93
8.92
11.52
9.22
7.37
7.70
6.93
6.23
6.177
5.713
5.285
7
8
9
8.93
4.46
6.55
6.55
6.56
5.90
5.90
5.91
4.888
4.522
4.462
10
11
12
6.55
3.28
5.90
5.91
5.90
4.461
4.462
4.461
13
14
15
5.91
5.90
5.91
4.462
4.461
4.462
16
17
18
2.95
4.461
4.462
4.461
19
20
21
4.462
4.461
2.231
MACRS GDS PROPERTY CLASSES
Property Class
Personal Property (non-real estate)
3-year
Special devices food, special tools/jigs, ADR life < 4 years
5-year
Automotive, aircraft, R&D, computers, ADR<10 years
7-year
Office equipment, all other, 10<ADR<16
10-year
Refining, water vessels, 16<ADR<20
15-year
Telephone, municipal treatment, 20<ADR<25
20-year
Municipal sewers, 25<ADR
Property Class
Real Property (real estate)
27.5-year
Residential
39-year
Nonresidential
Applicable Percentage for GDS Property Class
Recovery Year
3-year
Property
5-year
Property
7-year
Property
10-year
Property
15-year
Property
20-year
Property
1
2
3
33.33
44.45
14.81
20.00
32.00
19.20
14.29
24.49
17.49
10.00
18.00
14.40
5.00
9.50
8.55
3.750
7.219
6.677
4
5
6
7.41
11.52
11.52
5.76
12.49
8.93
8.92
11.52
9.22
7.37
7.70
6.93
6.23
6.177
5.713
5.285
7
8
9
8.93
4.46
6.55
6.55
6.56
5.90
5.90
5.91
4.888
4.522
4.462
10
11
12
6.55
3.28
5.90
5.91
5.90
4.461
4.462
4.461
13
14
15
5.91
5.90
5.91
4.462
4.461
4.462
16
17
18
2.95
4.461
4.462
4.461
19
20
21
4.462
4.461
2.231
Explanation / Answer
ASSET PURCHASED 70000 LESS SALVAGE VALUE 10000 VALUE TO BE DEPRECIATED 60000 YEARS TO BE USED 10 YEARS DEPRECIATION OF THIS YEAR 6000 marcs method depreciation year calculation depreciATION 1 70000*20% 14000 2 56000*32% 17920 3 38080*19.2% 7311.36 4 38080-7311.36*11.52% 3547.624 5 30768-3547*11.52% 3135.859 total 45914.84
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