Question

1. Assume you purchased herd of 20 pigs for breeding and you pay $500 per pig for them – total of $10,000. You bought them on March 1, 2017. Assume there is no loss of pigs and the salvage value is $150 per pig ($3,000 total). The useful life is 5 years. Use the MACRS 3-year schedule as shown in the PowerPoint (this is different from the useful life).

Using the information above and any documents provided to you calculate the “Previous Year Depreciation” and the Beginning of Year Book Value” for the years and the depreciation method in the table below. Place your answers in the table.

	Straight Line		150% Declining Balance		Sum of the Year’s Digits		MACRS
Year	Previous year Depreciation	Beginning of year Book Value	Previous year Depreciation	Beginning of year Book Value	Previous year Depreciation	Beginning of year Book Value	Previous year Depreciation	Beginning of year Book Value
3/1/2017	---	$10,000.00	---	$10,000.00	---	$10,000.00	---	$10,000.00
12/31/2017	$1,166.67	$8,833.33	$2,500.00	$7,500.00	$1,457.75	$8,542.25	$3,333.00	$6,667.00
12/31/2018	$1,400.00	$7,433.33	$2,250.00	$5,250.00	$1,541.75	$7,000.50	$4,445.00	$2,222.00
12/31/2019	$1,400.00	$6,033.33	$1,575.00	$3,675.00	$1,291.75	$5,708.75	$1,481.00	$741.00
12/31/2020	$1,400.00	$4,633.33	$675.00	$3,000.00	$1,041.75	$4,667.00	$741.00	$0.00
12/31/2021	$1,400.00	$3,233.33			$791.75	$3,875.25
12/31/2022	$233.33	$3,000.00			$541.75	$3,333.50
12/31/2023					$41.75	$3,291.75
12/31/2024					$291.75	$3,000.00

MACRS

Recovery Percentages

Recovery Year

                         

Recovery Year              3 year class               5 year class               7 year class                           

1.                        33.33%            20.00%              14.29%

        2.                                                 44.45%                                    32.00%                                    24.49%

        3.                                                  14.81%                                   19.20%                                    17.49%

       4.                                                   7.41%                                      11.52%                                    8.92%

       5.                                                                                                    11.53%                                    8.93%

       6.                                                                                                      5.76%                                     4.46%

Answer 1

The “Previous Year Depreciation” and the Beginning of Year Book Value” for the years is given in the table below.

For Straight line Method, Depreciable amount = Cost - Salvage = $10,000 - $3,000 = $7,000 is wirtten off over the useful life of 5 Years.i.e 60 months equally $116.67 per month.

For 150% Declining Balance, Depreciation Rate = 150% * Normal Rate( 100%/5 Years) = 150% * 20% = 30% p.a . Accordingly 30% p.a. rate is applied till salvage value of $ 3,000 is arrived at on a Written Down Value Basis.

The sum of years’ digits method is a form of accelerated depreciation that is based on the assumption that the productivity of the asset decreases with the passage of time. Under this method, a fraction is computed by dividing the remaining useful life of the asset on a particular date by the sum of the year’s digits. This fraction is applied to the depreciable cost of the asset to compute the depreciation expense for the period.

The MARS Deprecaition is calculated on the basis of the factors given in the power Point.

Please comment in case of any further queries.