Question

In: Accounting

Jeffrey bought equipment and a car to use in his business and placed the items in...

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?

Solutions

Expert Solution

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


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