Question
In: Finance
A piece of newly purchased industrial equipment costs $980,102.00 and is classified as a seven-year property...
A piece of newly purchased industrial equipment costs $980,102.00 and is classified as a seven-year property under MACRS. What is the book value of this piece of equipment at the end of year 3?
Solutions
Expert Solution
| Calculation of book value | ||||
| Year | Opening book value | MACRS % | Depreciation | Closing book value |
| Year-end | Previous year closing book value | Depreciation rate % | Cost of asset * MACRS % | Opening book value - Depreciation |
| 0 | - | - | - | $ 980,102.00 |
| 1 | $ 980,102.00 | 14.29% | $ 140,056.58 | $ 840,045.42 |
| 2 | $ 840,045.42 | 24.49% | $ 240,026.98 | $ 600,018.44 |
| 3 | $ 600,018.44 | 17.49% | $ 171,419.84 | $ 428,598.60 |
Therefore, book value at the end of year 3 is $428,598.60
We can also add the sum of the first 3 percentages of MACRS 7 year class and find depreciation then deduct from the cost.
i.e 14.29% + 24.49% + 17.49% = 56.27%
Depreciation = Cost of Asset * Rate of Depreciation
= $980,102.00 * 56.27% = $551,503.40
Book value at the end of 3 years = Cost of Asset - Depreciation
= $980,102.00 - $551,503.40 = $428,598.60
.
Excel formulas used:
MACRS table for your reference:
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