Question

A surface mount PCB placement/soldering line is to be installed for $1.6 million. It will have a salvage value of $100,000 after 5 years. Determine the depreciation deduction and the resulting unrecovered investment (adjusted basis) during each year of the asset’s life. a) Use straight line depreciation b)use double declining balance depreciation

Answer 1

1	Straight-line
	Year	Book Value year start	Depreciation Life	Depreciation Exp.	Acc. Dep	Book Value year-end
	1	$1,600,000	5	$300,000	$300,000	$1,300,000
	2	$1,300,000	5	$300,000	$600,000	$1,000,000
	3	$1,000,000	5	$300,000	$900,000	$700,000
	4	$700,000	5	$300,000	$1,200,000	$400,000
	5	$400,000	5	$300,000	$1,500,000	$100,000
	Depreciation per year = ($1,600,000 - $100,000)/5 = $300,000
2	Double declining balance method
	Year	Book Value year start	Depreciation Rate	Depreciation Exp.	Acc. Dep	Book Value year-end
	1	$1,600,000	40.00%	$640,000	$640,000	$960,000
	2	$960,000	40.00%	$384,000	$1,024,000	$576,000
	3	$576,000	40.00%	$230,400	$1,254,400	$345,600
	4	$345,600	40.00%	$138,240	$1,392,640	$207,360
	5	$207,360	51.78%	$107,360	$1,500,000	$100,000