Consider a 5 year MACRS depreciating asset (see page 318 in your book for the table). The initial value of the asset is $40,000 and will have a salvage value of $21,000 in three years. Find the gain or lass amount at the end of 3 years (consider a half-year convention for year 3).
A loss of $4930 |
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A gain of $9480 |
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A gain of $5640 |
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A gain of $4930 |
Answer: 2nd option
Under this method of depreciation, a 5-year property class has 6 years of recovery. The rates are 20%, 32%, 19.20%, 11.52%, 11.52%, and 5.76% respectively.
[Rates have been taken from MACRS table (half-year convention)
Up to 3 years, total recovery of depreciation is (20% + 32% + 19.20% =) 71.20%.
Depreciation recovered = Cost × Recovery rate
= 40,000 × 71.20%
= 28,480
Since the aggregate of depreciation and salvage value is higher than the cost, there is a gain.
Gain = (Depreciation recovered + Salvage value) – Cost
= (28,480 + 21,000) – 40,000
= 9,480
Consider a 5 year MACRS depreciating asset (see page 318 in your book for the table)....
Consider a 5 year MACRS depreciating asset (see page 318 in your book for the table). The initial value of the asset is $40,000 and will have a salvage value of $21,000 in three years. Find the gain or loss amount at the end of 3 years (consider a half-year convention for year 3).
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