In: Accounting
Jeffrey bought equipment and a car to use in his business and placed the items in service on the day that he bought them. The equipment cost $1,000,000 and was purchased on November 1, 2019. The car cost $20,000 and was purchased on June 1, 2019. What is Jeffrey’s depreciation for year 2019? 2020?
Given data,
Date of acquisition of Car - June 1, 2019
Car cost - $20,000
Date of acquisition of Equipment - November 1, 2019
Equipment cost - $1,000,000
As we can note neither useful life nor depreciation rate is given. Therefore we are going to assume the depreciation rates which would mostly reflect the standard rates.
Car
We assume Car to be depreciated by 15%. As the depreciation method is also not mentioned I've calculated in both the methods i.e SLM and WDV
As the car was acquired in the month of June and used only for 7 months, depreciation would be charged only for the used period in 2019. Whereas in 2020, it was used for the whole year, therefore we would charge depreciation for the whole year.
Calculation of depreciation for the Car:
Under the SLM method
2019 - Depreciation = $20,000 x 15% x 7/12 = $1,750
2020 - Depreciation = $20,000 x 15% = $3,000
Under the WDV method
2019 - Depreciation = $20,000 x 15% x 7/12 = $1,750
2020 - Depreciation = ($20,000-$1,750) x 15% = $2,737.5
Equipment
We assume Equipment to be depreciated by 40%. As the depreciation method is also not mentioned I've calculated in both the methods i.e SLM and WDV
As the Equipment was acquired in the month of November and used only for 2 months, depreciation would be charged only for the used period in 2019. Whereas in 2020, it was used for the whole year, therefore we would charge depreciation for the whole year.
Calculation of depreciation for the Equipment:
Under the SLM method
2019 - Depreciation = $1,000,000x 40% x 2/12 = $66,666.67
2020 - Depreciation = $1,000,000x 40% = $400,000
Under the WDV method
2019 - Depreciation = $1,000,000x 40%x 2/12 = $$66,666.67
2020 - Depreciation = ($1,000,000-$$66,666.67) x 40% = $373,333.33
Jeffrey’s depreciation for the year 2019
Under both the methods i.e the SLM and WDV depreciation for 2019 remains the same
Total depreciation = Depreciation on the car + Depreciation on the Equipment
= $1,750 + $66,666.67 = $68,416.67
Jeffrey’s depreciation for the year 2020
Under SLM method = Depreciation on the car + Depreciation on the Equipment
= $3,000 +$400,000 = $403,000
Under WDV method = Depreciation on the car + Depreciation on the Equipment
= $2,737.5 +$373,333.33 = $376,070.83