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An automated inspection system purchased at a cost of $200,000 by Mega Tech Engineering and has...

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!

Solutions

Expert Solution

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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jeff jeffy answered 1 year ago
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