Question

Warren Corporation acquires a used machine (five-year property) on December 28, 2017, at a cost of $250,000. Henry Corporation also acquires another used machine (seven-year property) on January 19, 2017, at a cost of $75,000. The company does not make the § 179 election.  

a. Determine the depreciation deduction for these assets in 2017.   

b. Determine the depreciation deduction under H.R. 1 assuming these assets were placed in service on the same dates in 2018.

Answer 1

Warren Corporation does not make election 179 so it charge depriciation with normal rate.

a) In 2017 machine was not in used so depriciation according to companies act with SLM Method

Depriciation for machine purchase as on december 28,2017,

Stage 1

Usefull Life of machine according to comapnies act 15years

Already expired useful life 5years

Remaining useful life 10years

Stage 2

Calculate Depriciable Amount

Historical cost / revalued value - Residual value(5% of Machine Value)

$250,000 - $12,500

=$237,500

Stage 3

Amount of Depriciation

= Depriciable Amount / Remaining useful life

=237500/10

=$23,750

Depriciation For Machinery purchased on Jan 19, 2017

Remaining life of machine(15yrs - 7yrs) = 8yrs

Depreciable value = $75,000 - (5% of $75,000)

= $75,000 - $3,750

= $71,250

Amount of depriciation = $71250 / 8yrs

=$8906.25

b) Machinery Purchase on Jan 19, 2017 Is Placed in Service on Jan 19, 2018

So Depriciation is charged Same As Above

Machinery Purchased on Dec 28, 2017 Placed in services on Jan 28, 2018

So depriciation is calculated as follows

Remaining useful life of machine = 15yrs - 5yrs

= 10yrs

Depriciable Value of asstes = 250000-12500

= 237500

Amount of Depriciation = 237500 / 10

= 23750 /2

= 11875.