Question

Recovery year	3 years	5 years	7 years	10 years
1	​33%	​20%	​14%	​10%
2	45	32	25	18
3	15	19	18	14
4	7	12	12	12
5		12	9	9
6		5	9	8
7			9	7
8			4	6
9				6
10				6
11				4

   

Under​ MACRS, an asset which originally cost​ $100,000, incurred installation costs of​ $10,000, and has an estimated salvage value of​ $25,000, is being depreciated using a

5 - year normal recovery period. What is the depreciation expense in year​ 1?\

A. 12750

B. 15,000

C. 22,000

D. 11,250

Answer 1

Given,

Asset original cost = $ 100000

Installation cost = $ 10000

Year 1 depreciation rate = 20%

Solution :-

Total original cost = asset original cost + installation cost

= $ 100000 + $ 10000 = $ 110000

Depreciation expense in year 1 = total original cost x Year 1 depreciation rate

= $ 110000 x 20%

= $ 22000

Thus, option 'C' is the correct answer.

Note : asset is using 5-year recovery period, so depreciation rate is taken from the column of 5 years.