Question

A construction company is purchasing a new Tractor for over the road use. The IRS classifies this as 3-year property. The truck costs $347000.
a) Determine the depreciation allowance for each year using SLN method.

b) Determine the depreciation allowance for each year using DDB method.

c) Determine the depreciation allowance for each year using MACRS.

d) Using a 10% MARR calculate the present worth of the depreciation for each of the 3 methods above.

Answer 1

(a) SL Method

Annual depreciation ($) = Cost / Useful life = 347,000 / 3 = 115,667

Depreciation schedule is as follows.

SLM
Year	Beginning-of-year Book Value ($)	Annual Depreciation ($)	End-of-Year Book Value ($)
1	3,47,000	1,15,667	2,31,333
2	2,31,333	1,15,667	1,15,667
3	1,15,667	1,15,667	0

(b) DDB Method

SL depreciation rate = 1/Useful life = 1/3

DDB Depreciation rate = 2 x SL rate = 2/3 = 0.67

Depreciation schedule is as follows.

DDB
Year	Asset Cost ($)	Depreciation Rate	Annual Depreciation ($)	End-of-Year Book Value ($)
1	3,47,000	0.67	2,31,333	1,15,667
2	1,15,667	0.67	77,111	38,556
3	38,556	0.67	25,704	12,852

(c) MACRS

Depreciation schedule is as follows.

MACRS
Year	Asset Cost ($)	Depreciation Rate (%)	Annual Depreciation ($)	End-of-Year Book Value ($)
1	3,47,000	33.33	1,15,655	2,31,345
2	3,47,000	44.45	1,54,242	77,103
3	3,47,000	14.81	51,391	25,713

(d) Present Worth (PW) of depreciation are computed as follows.

Year	SLM Depreciation ($)	PV Factor @10%	Discounted SLM Depreciation ($)
	(A)	(B)	(A) x (B)
1	1,15,667	0.9091	1,05,152
2	1,15,667	0.8264	95,592
3	1,15,667	0.7513	86,902
		PW of Depreciation ($) =	2,87,646
Year	DDB Depreciation ($)	PV Factor @10%	Discounted DDB Depreciation ($)
	(A)	(B)	(A) x (B)
1	2,31,333	0.9091	2,10,303
2	77,111	0.8264	63,728
3	25,704	0.7513	19,312
		PW of Depreciation ($) =	2,93,343
Year	MACRS Depreciation ($)	PV Factor @10%	Discounted MACRS Depreciation ($)
	(A)	(B)	(A) x (B)
1	1,15,655	0.9091	1,05,141
2	1,54,242	0.8264	1,27,472
3	51,391	0.7513	38,611
		PW of Depreciation ($) =	2,71,224