An asset for drilling was purchased and placed in service by a petroleum product

Question

An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $50,000, and it has an estimated MV of $13,000 at the end of an estimated useful life of 12 years. Compute the depreciation amount in the second year and the BV at the end of the sixth year of life by each of these methods: a. The SL method. b. The 200% DB method with switchover to SL. c. The GDS. d. The ADS. Click the icon to view the partial listing of depreciable assets used in business Click the icon to view the GDS Recovery Rates) a. Using the SL method the depreciation amount in the second year is $ 3083 (Round to the nearest dollar.) Using the SL method the BV at the end of the sixth year of life is S(Round to the nearest dollar.)

Explanation / Answer

a) Depreciation under SL Method = (Cost Basis - MV at the end)/Useful Life

= ($50,000 - $13,000)/12 yrs = $3,083

Total Depreciation charged upto sixth year under SL Method = Annual Depreciation*6 years

= $3,083*6 yrs = $18,498

Book Value at the end of sixth year = Cost Basis - Depreciation Charged upto six years

= $50,000 - $18,498 = $31,502

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