Question

On October 15, 2014, Roth Corporation purchased computers (5-year property) for $37000 and a sprinkler system for its office building grounds (15-year property) for $52500. Roth Corporation has purchased the office building on May 8, 2014 for $960000 of which $100000 was allocable to the land. these were the only asset purchases by the Roth Corporation during 2014. On April 21, 2017, Roth sells the building along with the computers and the sprinlter system. Compute Roth Corporation's allowable depreciation deduction for the office building, the computers, and the sprinkler system for both the year of purchase, 2014, and the year of the sale, 2017, assuming that expensing and bonus depreciation are not used.

Answer 1

Depreciation is allowable of assets which are being used in business and owned by business and have life of more than one year

business may take the benefits of deduction for depreciation from the year when it acquired it till when it diposed them or sells them.

we will use the SLM (Straight Line Method ) with half year convention to solve the problem. Half year convention provides that business may take the half benefit of allowable depreciation in years of acuiring and selling of assets.

Useful life of assets as per IRS is below to apply the depreciation

Computer 5Years

Sprinkler System 15 Years

Office Building = 39 Years

Depreciation in not allowable on land so while calculate depreciation for office building we will decrease the acuition price of offfice building by $ 100000.

And all of above assets are for 100 percent business use so 100 percent depreciation will be alowable and in year of acuiring and selling the depreciation will be limited up to 50 percent.

So we can calculate depreciation as follows by using SLM method along with half year convention

Computer

Useful Life 5 Years

Cost Price = $37000

2014 37000 Less than Year 3700 33300

2015 33300 Full Year 7400 25900

2016 25900 Full Year   7400 18500

2017 18500   Less than year   3700 14800

Sprinkler System

Useful Life 15 Years

Cost Price $52500

2014 52500 Less than Year 1750 50750

2015 50750 Full Year 3500 47250

2016 47250 Full Year   3500 43750

2017 43750 Less than year   1750 42000

Office Building

Useful Life 39 Years

Cost $960000 - $100000 =$860000

2014 860000 Less than Year 11025 848975

2015 848975 Full Year 22051 826924

2016 826924 Full Year   22051 804873

2017 804873 Less than year   11025 793848

Allowable Depreciation in Year 2014 = (3700 + 1750 + 11025) = $16475

Allowable Depreciation in Year 2017 = (3700 + 1750 + 11025) = $16475

So this is the solution.