An automated inspection system purchased at a cost of $200,000 by Mega Tech Engi

Question

An automated inspection system purchased at a cost of $200,000 by Mega Tech Engineering and has a useful life of 7 years. The Salvage Value is expected to be zero. The system was sold after 4 years for $150,000. Determine the depreciation recapture on this equipment. Calculate the depreciation recapture using the following methods:

A) SL

B) SOYD

C) MACRS

Show full work with hand calculations as well as excel document showing how you calculated everything out so I can learn it for myself. Thank you in advance!

Explanation / Answer

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A)All Calculations are for four years because they will be sold at 4th year SL method depreciation is same throughout the life of the system. Formula = (Machine Cost - Salvage Value)/life in years= (200000-0)/7 = 28571.42857 Year 0 1 2 3 4 System cost -200000 Depreciation -28571.43 -28571.43 -28571.43 -28571.43 B)SOYD Sum of year digits can be calculated as follows SUM of DIGITS of years =( 1+2+3+4+5+6+7) =28 Year 0 1 2 3 4 Formula for depreciation rate% (7/28)*100 (6/28)*100 (5/28)*100 (4/28)*100 Depreciation rate 25.00% 21.43% 17.86% 14.29% Year 0 1 2 3 4 System cost -200000 Depreciation=System cost * depreciation rate -50000.00 -42857.14 -35714.29 -28571.43 c) MACRS method MACRS rate as per table available online for 7 year 14.29% 24.49% 17.49% 12.49% Depreciation = System Cost * Macrs rate -28580 -48980 -34980 -24980

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