Question

The Acme Chemical Company paid $45,000 for research equipment, which it believes will have zero salvage value at the end of its 5-year life.The research equipment will have a market value of $5000 at the end of year Compute the depreciation schedule using:

(a) Straight line
(b) 100% bonus depreciation
(c) MACRS
(d) 60% bonus depreciation plus MACRS

Answer 1

Ans : Computation of depreciation

a) Straight line method :

Depriciation per year = Cost of the asset - salvage value / Useful life of the asset

= $ 45,000 / 5 = $ 9000

b). 100% bonus depriciation : Bonus depriciation is a way to accelerate depriciation. It allows a business to write off more of the cost of an asset in the year the company starts using it. Tax cuts and jobs Act of 2017, a business can write off upto 100% of the cost of the eligible property purchased after Sep. 2017 and before Jan 1 2023.

c). MACRS :

We can use Table A-1 provided by IRS , For 5 year property with half year convention and 200 % declining method rate for the 1st year is 20%

Depriciation for 1st year = cost of the asset. x 20%

= $ 45,000 x 20%

= $ 9,000

Depriciation for 2nd year = $ 45,000 x 32% = $ 14,400

Depriciation for 3rd year = $ 45,000 x 19.2% = $ 8,640

Depriciation for 4th year = $ 45,000 x 11.52 % = $ 5,184

Depriciation for 5th year = $ 45000 x 11.52 % = $ 5,184

d). 60% bonus depriciation and MACRS :

60% bonus depriciation = $ 45,000 x 60% = $ 27,000

Computation of MACRS depriciation deduction on the remaining depriciable asset using first year table percentage :

For 1st year = $ 18,000 x 20% = $ 3,600

2nd year = $ 18,000 x 32% = $ 5,760

3rd year = $ 18,000 x 19.2% = $ 3,456

4th year = $ 18,000 x 11.52 % = $ 2,074

5th year = $ 18,000 x 11.52% = $ 2,074