Equipment worth $75,000 is being used in the production of petroleum and natural
ID: 2739277 • Letter: E
Question
Equipment worth $75,000 is being used in the production of petroleum and natural gas. The estimated salvage value of this equipment is $20,000 at the end of fourteen years. The Modified Accelerated Cost Recovery System (MACRS) class life is also fourteen years.
a). Depreciation during the third year using 200% Declining Balance (DB) method, and book value at the end of fifth year.
b). Total depreciation during the third, fourth and fifth year using General Depreciation System (GDS) under (MACRS).
Explanation / Answer
ANSWER A:- Depreciation during the third year using 200% Declining Balance (DB) method, and book value at the end of fifth year.
Depreciation Rate = Straight line depreciation rate x 200% =[ 1/14 *100] * 200% = 14.2857 %
Book Value = P ( 1 + 2/N) n = 75000 ( 1 + 2/14)5 = 75000(0.857143)5= 34699.856
or 75000 - (34516.841+5783.303) = 34699.856
ANSWER B:Total depreciation during the third, fourth and fifth year using General Depreciation System (GDS) under (MACRS).
A general depreciation system uses the declining-balance method to depreciate property
From the above table add depreciation for years 3-4-5 = 7871.715+6747.185+5783.303 = 20402.203
YEAR CALCULATION DEPRECIATION 1 75000-0 10714.275 2 75000-10714.275 9183.666 3 75000 - 19897.941 7871.715 4 75000-27769.656 6747.185 5 75000 - 34516.841 5783.303Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.