In: Finance
Cost of the Equipment = $1,225,000
The cost is to be depreciated over 7 years.
hence depreciation cost per year = $1,225,000 / 7 = $175000.
Depreciation Schedule-
Year | Opening book value | Depreciation | Closing book value |
1 | 1,225,000 | 175,000 | 1,050,000 |
2 | 1,050,000 | 175,000 | 875,000 |
3 | 875,000 | 175,000 | 700,000 |
4 | 700,000 | 175,000 | 525,000 |
5 | 525,000 | 175,000 | 350,000 |
6 | 350,000 | 175,000 | 175,000 |
7 | 175,000 | 175,000 | 0 |
Book value of the Equipment at the end of 5 year = $350000
Sale value = $415,000
Gain on sale of of equipment = $415,000-$350,000 = $65000
Tax on gain on sale = $65000*20% = $13000
After tax net proceeds from sale of equipment = $415000-$13000 = $402,000