Question

***********I NEED JUST PART E************

Thanks in advance!!!

An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated salvage value (SV) for depreciation purposes is to be $25,000. Use this information to solve the following questions: a) Using the straight line (SL) method, the annual depreciation on the equipment is b) Using the double declining balance (DDB) method, the depreciation charge in year 3 is c) Using the SL method, the book value (BV) at the end of the depreciable life is d) If SL depreciation is used and the equipment is sold for $35,000 at the end of the 10 years, the taxable gain (capital gain) on the disposal of the equipment is e) If a MACRS depreciation schedule is used (based on a 5-year property class*) and the equipment is sold for $35,000 at the end of the 10 years, the taxable gain (capital gain) on the disposal of the equipment likely to be (Percentages: 20.00, 32.00, 19.20, 11.52, 11.52, 5.76)

Answer 1

a. Annual Depreciation under straight line method = (Cost of Asset - Salvage Value)/Useful life of asset.

= ($5,50,000-$25,000)/10

= $ 52,500

b.Depreciation charge using Double Declining Balance Method = 2*Straight line depreciation percent* Book value

=2*0.0955*550000

=$ 1,05,000

c.Book Value = Original cost - accumulated depreciation

Under SL method Book value at the end of Depreciated value is its salvage value i.e., $25,000

d.The Taxable capital gain = $35,000 - $25,000 = $ 10,000

e.The Taxable capital gain under MACRS depreciation schedule is $3,320