Question

22. Assume a company purchases a depreciable asset for $1 million, and that the asset has an eight-year estimated life and a
0 0
Add a comment Improve this question Transcribed image text
Answer #1

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.

Add a comment
Know the answer?
Add Answer to:
22. Assume a company purchases a depreciable asset for $1 million, and that the asset has an eight-year estimated l...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT