Question

Company B purchased equipment that cost 750,000 with salvage value of 150,000 after 10 year for both plant in the United States and Hong Kong. MACRS depreciation with n=5 year is applied in the United States and standard SL depreciation with n=10 years is used in Hong Kong.

1. Develop and graph the book value for both plants.

2. If the equipment is sold after year 10 for 100,000, find the over or under depreciated amounts for each plant.

Answer 1

Cost of Equipment 7,50,000 Salvage Value 1,50,000 Life 10 years Depreciation as per MARCS - 5 year (United States) Depreciation $750000 x Year Rate of Dep rate 20.00% 1 1,50,000 32.00% 2 2,40,000 19.20% 1,44,000 86,400 4 11.52% 11.52% 5 86,400 5.76% 6 43,200 Cost of Asset Salvage Depreciation as per SL (Hong Kong) Life of Asset 750000-150000 10 years 60,000 per year Table Showing Depreciation Charged by United States and Hong kong Year United States Hong Kong Opening BV Depreciaion Closing BV Opening BV Deoreciation Closing BV 1 7,50,000 1,50,000 6,00,000 7,50,000 60,000 6,90,000 2 6,00,000 2,40,000 3,60,000 6,90,000 60,000 6,30,000 5,70,000 3,60,000 1,44,000 2,16,000 6,30,000 60,000 5,10,000 4 2,16,000 86,400 1,29,600 5,70,000 60,000 86,400 43,200 4,50,000 5 1,29,600 5,10,000 60,000 43,200 43,200 4,50,000 60,000 3,90,000 3,30,000 7 3,90,000 60,000 2,70,000 3,30,000 60,000 2,10,000 9 2,70,000 60,000 10 2,10,000 60,000 1,50,000

Book Values 800000 700000 600000 500000 400000 300000 200000 100000 0 1 2 4 5 6 7 10 Series1 Series2 Blue USA Orange- Hong Kong Solution 2. If Asset sold after 10 years for 100,000 Sale BV USA = 100000 0 Over Absorption of dep 100000 Hongkong Sale BV = 100000-150000 Underabsorption of Dep 50000

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