Question

On January 1, 2019, Delta Company acquired new equipment with an estimated useful life of 5 years. Cost of the equipment was $5,000,000 with a residual value of $250,000. For income tax purposes, this machinery qualifies as 5-Year property. 3 Years Year 1 Year 2 Year 3 Year 4 MACRS Rates 33.33% 44.45% 14.81% 7.41% Instructions Compute the amounts of depreciation recognized in each of first 4 years (2019, 2020 & 2021) under each of the depreciation methods listed below.

a. Straight Line Method

b. MACRS Method

Answer 1

Answer :

Purchase Price of Equipment = $5,000,000

Residual Value = $250,000

Useful life = 5 Years

(a)

Depreciation as per Straight line method = ($5,000,000 - 250,000) / 5 = $950,000

So, Under Straight Line Depreciation Method :

Depreciation for Year 2019	$950,000
Depreciation for Year 2020	$950,000
Depreciation for Year 2021	$950,000
Depreciation for Year 2022	$950,000

(b) Under MACRS Method :

Particulars	Depreciation Rate	Calculations	Depreciation Amount
Depreciation for Year 2019	33.33%	$5,000,000 x 33.33%	$1,666,500
Depreciation for Year 2020	44.45%	$5,000,000 x 44.45%	$2,222,500
Depreciation for Year 2021	14.81%	$5,000,000 x 14.81%	$740,500
Depreciation for Year 2022	7.41%	$5,000,000 x 7.41%	$370,500