Assume a income before depreciation and taxes of $500,000.
Double declining rate = 1/8 * 2= 25%
Depreciation charge under double declining rate = $ 1,000,000 * 25% = 250,000
Taxable income= 500,000 - 250,000 = 250,000
taxes paid = 250,000 * (40%) = 100,000
If straight line method is used , depreciation charge = 1,000,000 /8 = 125,000
Taxable income = 500,000 - 125,000 = 375000
Income after taxes = 375,000 * 40%=150,000
The cash flow to the owner increases by $50,000 if double declining method is opted. This is due to higher depreciation charge as per the method.
22. Assume a company purchases a depreciable asset for $1 million, and that the asset has an eight-year estimated l...
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9. Calculate the depreciation expense in the third year of the life of an asset having a $70,000 original cost, 10 percent estimated salvage value, and an eight-year estimated life, assuming each of the following depreciation methods: a. Straight line b. Double-declining balance c. Declining balance at a 150 percent rate (rather than a double rate)
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On June 1, 20--, a depreciable asset was acquired for $4,020. The asset has an estimated useful life of five years (60 months) and no salvage value. Using the straight-line depreciation method, calculate the book value as of December 31, 20--. If necessary, round your answer to two decimal places.
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