Given an asset with initial cost of $20,000, useful life of 5 years, salvage value =...

Given an asset with initial cost of $20,000, useful life of 5 years, salvage value = 0, find the depreciation allowances and the book values using the

a. Straight-Line Method

b. MACRS

Expert Solution

Question A - Straight Line Method Depreciation

Depreciation = Initial Cost - Salvage Value / Useful Life

Depreciation = (20000 - 0) / 5 = 4000

Year	Opening book value	Depreciation	Closing Book value
1	20000	4000	16000
2	16000	4000	12000
3	12000	4000	8000
4	8000	4000	4000
5	4000	4000	0

Question B - MACRS Depreciation

MACRS method has predetermined rate of depreciation of useful life of asset

MACRS depreciation for useful life of asset 5 years is as under

Year	Depreciation Rate
1	20.00%
2	32.00%
3	19.20%
4	11.52%
5	11.52%

Calculation of Depreciation

Year	Asset Price	Depreciation Rate	Depreciation
1	20000	20.00%	4000
2	20000	32.00%	6400
3	20000	19.20%	3840
4	20000	11.52%	2304
5	20000	11.52%	2304

Calculation of Book Value

Year	Opening book value	Depreciation	Closing Book value
1	20000	4000	16000
2	16000	6400	9600
3	9600	3840	5760
4	5760	2304	3456
5	3456	2304	1152

jeff jeffy answered 2 years ago

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