A file server and peripherals (MACRS-GDS 5-year property) are purchased in Decem

Question

A file server and peripherals (MACRS-GDS 5-year property) are purchased in December by a calendar- year taxpayer for $8,000. The server will be used for 6 years and be worth $200 at that time. Calculate the depreciation deduction during years 1, 3, and 6. Use straight-line depreciation. Use declining balance depreciation, with a rate that ensures the book value equals the salvage value. Use double declining balance depreciation. Use double declining balance depreciation, switching to straight line depreciation. Use MACRS-GDS allowances. 1. 2. 3. 4. 5.

Explanation / Answer

file server and pheripheral
a) Straight line method
(Rs in $)
Purchased 8000
Life 6 years
scrap value 200
Depreciation 8000-200/6
Depreciation per year 1,300

c) Double declining method
Useful life 6
straight line 1/ 6
= 16%
So depreciation rate = 16*2
=33.33
Depreciation for 1 yr =2666.4
Depreciation for 2 yr =1777.7
Depreciation for 3 yr=1185.2
Depreciation for 4 yr =790.2
Depreciation for 5 yr =526.8
Depreciation for 6 yr =351.2

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