What is the depreciation deduction, using each of the following methods, for the
ID: 2519532 • Letter: W
Question
What is the depreciation deduction, using each of the following methods, for the third year for an asset that costs $30,000 and has an estimated MV of $6,000 at the end of its eight-year useful life? Assume its MACRS class life is also eight years. (a) 200% DB, (b) GDS (MACRS), and (c) ADS (MACRS). Click the icon to view the summary of the principal features of GDS under MACRS Click the icon to view the GDS Recovery Rates (rk). Using the 200% DB method the depreciation deduction for the third year is $ b. Using the GDS (MACRS) method the depreciation deduction for the third year is c. Using the ADS (MACRS) method the depreciation deduction for the third year is S (Round to the nearest dollar Round to the nearest dollar.) Round to the nearest dollar.)Explanation / Answer
Part a:
Cost of the asset
30000
Less: MV at the end of useful life
6000
Depreciable value
24000
Useful life of the asset
8 Years
Annual Depreciation under SLM (24000 / 8)
3000
Rate of depreciation in SLM (3000 x 100/30000)
10
Thus, using 200% DB method the rate of depreciation (10 x 200%)
20%
Depreciation schedule
Year
(A): Asset value at the beginning
(B): Depreciation (A x 20%)
Asset value at the end (A – B)
1
30000
6000
24000
2
24000
4800
19200
3
19200
3840
15360
Thus, the amount of depreciation under 200% DB method for year three is (19200 x 20%) =$3,840.
Part b:
Cost of the asset
30000
Less: MV at the end of useful life
6000
Depreciable value
24000
Useful life of the asset
8 Years
Annual Depreciation under SLM (24000 / 8)
3000
Rate of depreciation in SLM (3000 x 100/30000)
10
Depreciation schedule
Year
Asset value at the beginning
Depreciation
Asset value at the end
1
30000
3000
27000
2
27000
2700
24300
3
24300
2430
21870
Thus, the amount of depreciation in GDS (MACRS) is $2,430
Part c:
Depreciation schedule
Year
Asset value at the beginning
Depreciation
Asset value at the end
1
30000
(30000 x 0.3333) =9999
20001
2
20001
(20001 x 0.4445)= 8890.445
11110.56
3
11110.56
(11110.56 x 0.1481)=1645.473
9465.08
Thus, the amount of depreciation in ADS (MACRS) is $1,645.
Cost of the asset
30000
Less: MV at the end of useful life
6000
Depreciable value
24000
Useful life of the asset
8 Years
Annual Depreciation under SLM (24000 / 8)
3000
Rate of depreciation in SLM (3000 x 100/30000)
10
Thus, using 200% DB method the rate of depreciation (10 x 200%)
20%
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