Question

A company that earns $8,000 per year has an asset that can be declined by the DDB method. The initial cost of the asset is $10,000; and its salvage value is $1,500 after 4 years. Note that the book value of the asset at year 4 must meet its salvage value. If MARR is 10% per year. Find the taxable income in years 1-4. Straight Line Depreciation: ds-1/n BV B(1-dpa) i-10% 11.100 0909 1.000 0.000 2 1210 1.736 2.100 0.826 1.331 2.487 3.310 2.329 4 1.464 3.170 46414.378 1.611 3.791 6.105 6.862 6 1.772 4.355 7.716 9.684 7 1.949 4.868 9.487 12.76 2.144 5.335 1144 16.03 2.358 5.759 13.58 19.42 10 2594 6145 1594 22 89

Answer 1

Straight line depreciation percent = 1/n

= 1 / 4

= 25 %

Depreciation= 2 x straight-line depreciation percent x book value at the beginning of the period

Year 1 Depreciation = 2 * 25% * 10000

= 5000

Year 2 Depreciation = 2* 25% *5000

= 2500

Year 3 Depreciation = $1000

Year 4 Depreciation = 0

Salvage value at end of year 4 = 1500

Year	1	2	3	4
Earnings	8000	8000	8000	8000
Less- Depreciation expense	5000	2500	1000	0
Add- Salvage value				1500
Taxable income	3000	5500	7000	9500