3. In May of 2015, McGinni, Inc. traded in a computer and peripheral equipment u
ID: 2562055 • Letter: 3
Question
3. In May of 2015, McGinni, Inc. traded in a computer and peripheral equipment used in its 3D printing business that had a book value at the time equal to $30,000. A new, faster computer system having a fair market value of $450,000 was acquired. Because the vendor accepted the older computer as a trade-in, a deal was agreed to whereby McGinni would pay $375,000 in cash for the new computer system. a. What is the GDS property class of the new computer system? b. What is the MACRS recovery period for the new computer system? c. Compute the cost basis for the new computer system by using the following formula: Cost basis = actual cash cost + book value of trade-in. d. Compute and tabulate the depreciation allowances and book values for the new computer systemExplanation / Answer
a. GDS Property Class - The new Computer System falls under the personal class of GDS Class Table under 5 year property as Information System: Computers/ Peripherals.
b. As per MACRS GDS property classes Table, recovery period of new Computer System will be 5 years.
c. Cost Basis of new Computer = Actual Cash cost of new computer ($375,000) + Book value of trade in ($30,000)
= $375,000 + $30,000
= $405,000.
d.
Computation of Depreciation Allowance and Book values for each year
Year
Opening Book Value (A)
Depreciation Rate (As per Double Declining Method)
Calculation of Depreciation
Amount of Depreciation(B)
Closing Balance of Book Value
(A-B)
1
405,000
20%
$405,000 x 20%
81,000
324,000
2
324,000
32%
$324,000 x 32%
103,680
220,320
3
220,320
19.20%
$220,320 x 19.20%
42,301.44
178,018.56
4
178,018.56
11.52%*
$178,018.56 / 2.5 years
71,207.424
106,811.136
5
106,811.136
11.52%
$178,018.56 / 2.5 years
71,207.424
35,603.712
6
35,603.712
5.76%
$178,018.56 /2.5 x 0.5 years
35,603.712
0
NOTE: *From fourth year onwards the double declining method will shift to straight line method of depreciation. Therefore, remaining book value of Rs. 178,018.56 will be depreciated over 2.5 years. And hence depreciation for the fourth & fifth year will be $178,018.56 / 2.5 years = 71,207.424 and remaining value of Rs. 35,603.712 will be depreciated in the 6th year.
Year
Opening Book Value (A)
Depreciation Rate (As per Double Declining Method)
Calculation of Depreciation
Amount of Depreciation(B)
Closing Balance of Book Value
(A-B)
1
405,000
20%
$405,000 x 20%
81,000
324,000
2
324,000
32%
$324,000 x 32%
103,680
220,320
3
220,320
19.20%
$220,320 x 19.20%
42,301.44
178,018.56
4
178,018.56
11.52%*
$178,018.56 / 2.5 years
71,207.424
106,811.136
5
106,811.136
11.52%
$178,018.56 / 2.5 years
71,207.424
35,603.712
6
35,603.712
5.76%
$178,018.56 /2.5 x 0.5 years
35,603.712
0
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.