Question

6. Regardless of the GAAP depreciation method selected ... a. the maximum allowable depreciation over the asset's life is the b. the total accumulated depreciation at the end of the asset's life will equal the depreciable base. c. the total accumulated depreciation at the end of the asset's life cannot exceed the depreciable base. d. all of the above. 7. On August 1 of the current year, a company with a December 31 year-end buys a nonresidential building for $600,000, which includes land that costs $100,000. Under MACRS, depreciation for this year will be a. $14,766 b. $12,305 c. $5,778 d. $4,815 8. For the building in Question 7, depreciation in the 12th year will be... a. $15,384 b. $12,820 c. $642 d. $535 9. When MACRS, Table 1 depreciation for an auto or light SUV, pickup or van is in excess of annual IRS limits the excess depreciation ...! a. is lost permanently. b. may be taken by extending the MACRS recovery period for one extra year. c. may be taken by extending the MACRS recovery period for as many years as are needed to depreciate the cost basis. d. may result in the auto being depreciated under a GAAP method. 10. During 2018, your firm acquires a 5,000-lb. SUV for $30,000 and a 6,200-lb. SUV for $35,000. How much of a Section 179 deduction will your firm take on each vehicle in 2018? a. $25,000 and $25,000 b. $0 and $25,000 c. $30,000 and $35,000 d. You cannot take a Sec. 179 deduction for SUVs.

Answer 1

6) Solution:

As per the GAAP, the accumulated depreciation at the end of the asset life will equal to the depreciable base

Secondly, the accumulated depreciation at the end of the asset life cannot exceed the depreciable base and amximum allowable depreciation over the assets life is the same.

Therefore, the answer is (d) al of the above

7) Solution:

Depreciation is a deduction that allows to recover the cost of an asset due its wear and tear, deterioration, or obsolescence of the asset over its useful life.

Under Modified accelerated cost recovery system the depreciation for the bulising is calculated below:

Cot of Non Residential Building = $600,000

Less: Cost of Land =($100,000)

Depreciation Base =$500,000

As per MACRS useful life of a non residential building = 39 years

Land has unlimited useful life hence there will be no depreciation for land

Depreciation calculation for the Current Year is as follows:

Depreciation Base = $500,000

Depreciation Method = Straight Line Method

Recovery period = 39 years

IRS Convention = Mid - Quarter Convention

Depreciation Amount = Depreciation Base * Mid Quarter Covention/Recovery Period

= $500,000*(1.5/4)/39

=$ 4815(Approx)

8) Solution: Deprecion for the 12th year

Deprecitaion Amount = $500,00/39

= $12,82

Under straight line method of depreciation, depreciation amount will be equal for all years except 1st year if the assest is not placed in service at the begining of the year

9) Solution: Excess depreciation over IRS limits

May be taken by extending the MACRS recovery period for as many years as are needed to dpreciate the cost basis

10) Solution: Decuction under section 179

Section 179 provides maximum deduction for assets purchased for business purpose in the year of purchase.

Deduction is allowed to the extent it is used for the business.

TO claim deduction an asset should qualify under section 179

Since SUV's (Sports utility vehicles) do not qualify for section 179 deductions.

Therefore, option (d) is correct