Question

Natale is also thinking of buyinga van that will be used only for business. The cost of the van is estimated at $38,500. Natale would spend an additional $2,500 to have the van painted. In addition she wants the back seat of the van removed se that she will have lots of room to transport her mixer inventory as well as her baking supplies. The cost of taking out the back seat and installing shelving units is estimated at $1.500. She expects the van to last her about 5 years, and she expects to drive it for 100,000 miles. The annual cost of vehicle insurance wil be $2,400. Natale estimates that at the end of the 5-year useful life the van will sell for $6,500. Assume that she will buy the van on August 15, 2018, and it will be ready for use on September 1, 2018 Natalie is concerned about the impact of the van's cost on her income statement and balance sheet. She has come to you for advice on calculating the van's depreciation Determine the cost of the van. Cost of van

Answer 1

Cost of the Van S.No 1Cost of the Van 2Painting of Van 3 Installing Shelving Units 4 Insurance Cost Amount Particulars Remarks S38,500 S2,500 S1,500 SO Not to be included, because its benefit is not enduring S42,500 Total Other Information 5 years Useful Life Salvage value after useful life Ready to use on September 1, 2018 S6,500

Depreciation Schedule: Amount to be Capitalized = $ 42,500 Depreciable Amount = 42500 - 6500 S 36,000 No. of months used in 2018 4 months Rate 1/5 20% End of the Year Annual Depreciation Depreciable Year Accumulated Вook Cost Еxpense Depreciation Value 2018 2019 2020 2021 S36,000 S2,400 S2,400 S40,100 S9,600 S32,900 $7,200 $7,200 $7,200 $7,200 S36,000 S36,000 $36,000 S36,000 S16,800 S25,700 S24,000 s18,500 S31,200 S36,000 2022 S11,300 2023 S36,000 S4,800 S6,500

Method of Depreciation for Tax Purpose in USA:

Nattalle should use MACRS - Modified Accelerated Cost Recovery System

Is She required to use same method for Financial and tax reporting? NO. Not necessary