Your company is considering the purchase of a secondhand scanning microscope at
ID: 2547630 • Letter: Y
Question
Your company is considering the purchase of a secondhand scanning microscope at a cost of $10,500 with an estimated salvage value of $500 and a projected useful life of 4 years. Determine the straight-line (SL), sum-of-years-digits (SOYD) and double declining balance (DDB) depreciation schedules. If the Before Tax Cash Flow for year 3 is $10,000 then what is the Taxable Income in year 3 for each depreciation method? SL $5500, SOYD $3500, DDB $2650.00 SL $8125, SOYD $8000, DDB $7828.00 SL $1875, SOYD $2000, DDB $2172.00 SL $7500, SOYD $8000, DDB $8687.50Explanation / Answer
Solution: i SLM Method Annual Depreciation =(Cost - Salvage)/Life of asset =($10,500-500)/4 $ 2,500.00 Year Cashflow before tax Depreciation Cashflow after tax 1 $ 10,000.00 $ 2,500.00 $ 7,500.00 2 $ 10,000.00 $ 2,500.00 $ 7,500.00 3 $ 10,000.00 $ 2,500.00 $ 7,500.00 4 $ 10,000.00 $ 2,500.00 $ 7,500.00 ii Sum of year digit Year Weight Depreciation Work Note 1 4 $ 4,000.00 (10500-500)*4/10 2 3 $ 3,000.00 (10500-500)*3/10 3 2 $ 2,000.00 (10500-500)*2/10 4 1 $ 1,000.00 (10500-500)*1/10 10 Year Cashflow before tax Depreciation Cashflow after tax 1 $ 10,000.00 $ 4,000.00 $ 6,000.00 2 $ 10,000.00 $ 3,000.00 $ 7,000.00 3 $ 10,000.00 $ 2,000.00 $ 8,000.00 4 $ 10,000.00 $ 1,000.00 $ 9,000.00 iii Double declining method Year Depreciation Work Note 1 $ 5,250.00 ($10,500*1/4*200%) 2 $ 2,625.00 ($10,500-5,250)*1/4*200% 3 $ 1,312.50 ($10,500-5,250-2,625)*1/4*200% 4 $ 656.25 ($10,500-5,250-2,625-1,312.50)*1/4*200% Year Cashflow before tax Depreciation Cashflow after tax 1 $ 10,000.00 $ 5,250.00 $ 4,750.00 2 $ 10,000.00 $ 2,625.00 $ 7,375.00 3 $ 10,000.00 $ 1,312.50 $ 8,687.50 4 $ 10,000.00 $ 656.25 $ 9,343.75 Answer: Option 4: SL $7,500, SOYD $8,000, DDB $8,687.50
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.