An asset for drilling was purchased and placed in service by a petroleum product
ID: 2579421 • Letter: A
Question
An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $65,000, and it has an estimated MV of $12,000 at the end of an estimated useful life of 10 years. Compute the depreciation amount in the fifth year and the BV at the end of the seventh year of life by each of these methods: a. The SL method. b, The 200% DB method with switchover to SL. c. The GDS d. The ADS. Click the icon to view the partial listing of depreciable assets used in business. Click the icon to view the GDS Recovery Rates ( a. Using the SL method the depreciation amount in the fifth year is $(Round to the nearest dollar.) Using the SL method the BV at the end of the seventh year of life is Round to the nearest dollar.) b using the 200% DB method the depreciation amount in the fifth year is $ Round to the nearest dollar. Using the 200% DB method the BV at the end of the seventh year of life is S (Round to the nearest dollar) c. Using the GDS the depreciation amount in the fifth year is s(Round to the nearest dollar) Using the GDS the BV at the end of the seventh year of life is S-(Round to the nearest dollar.) d. using the ADS the depreciation amount in the fifth year is S . (Round to the nearest dollar) Using the ADS the BV at the end of the seventh year of life is S. Round to the nearest dollar.)Explanation / Answer
a. Straight Line method
Depreciation each year = ($65,000 - $12,000) / 10 years = $5,300 per year
Depreciation for fifth year = $5,300
Book value at the end of seventh year = $65,000 - ($5,300 x 7) = $27,900
b. Double declining method - Answer not known.
c. GDS class Depreciation
MACRS - Petroleum production falls under the GDS class recovery of 7 years
Year
Opening Balance
Rate of Dep as per MACRS GDC Class
Amount of Depreciation
Closing Balance
1
65,000
0.1429
9,289
55,711
2
55,711
0.2449
15,919
39,792
3
39,792
0.1749
11,369
28,423
4
28,423
0.1249
8,119
20,304
5
20,304
0.0893
5,805
14,499
6
14,499
0.0892
5,804
8,695
7
8,695
0.0893
5,805
2,890
8
2,890
0.0446
2,890
0
Depreciation for fifth year = $5,805
Book Value at end of seventh year = $2,890 Approx
4. ADS Class of asset
Recovery period under ADS is 14 years.
MACRS - Petroleum production falls under the GDS class recovery of 7 years
Year
Opening Balance
Rate of Dep as per MACRS ADS Class
Amount of Depreciation
Closing Balance
1
65,000
65,000 / 14 / 2
2,321
62,679
2
62,679
65,000 / 14
4,643
58036
3
58036
65,000 / 14
4,643
53,393
4
53,393
65,000 / 14
4,643
48,750
5
48,750
65,000 / 14
4,643
44,107
6
44,107
65,000 / 14
4,643
39,464
7
39,464
65,000 / 14
4,643
34,821
8
34,821
65,000 / 14
4,643
30,178
9
30,178
65,000 / 14
4,643
25,535
10
25,535
65,000 / 14
4,643
20,892
11
20,892
65,000 / 14
4,643
16,249
12
16,249
65,000 / 14
4,643
11,606
13
11,606
65,000 / 14
4,643
6,963
14
6,963
65,000 / 14
4,643
2,320
15
2,320
65,000 / 14 / 2
2,320
0
Depreciation for the fifth year = $4,643
Book Value at end of seventh year = $34,821
Year
Opening Balance
Rate of Dep as per MACRS GDC Class
Amount of Depreciation
Closing Balance
1
65,000
0.1429
9,289
55,711
2
55,711
0.2449
15,919
39,792
3
39,792
0.1749
11,369
28,423
4
28,423
0.1249
8,119
20,304
5
20,304
0.0893
5,805
14,499
6
14,499
0.0892
5,804
8,695
7
8,695
0.0893
5,805
2,890
8
2,890
0.0446
2,890
0
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.