Question

A small business purchases some office furniture for $43000 and will sell it for an estimated $6000 in 5 years. (Replace them with new furniture)

a. Compute the 2nd year depreciation amount, using the straight line depreciation.

b. Calculate the 3rd year depreciation amount, using the SOYD depreciation.

c. Calculate the 4th year depreciation amount, using DDB depreciation.

d. Calculate the 5th year depreciation amount, using MACRS depreciation.

Answer 1

a. Under straight line method, depreciation = Cost - Salvage value divided by estimated life.

(43000-6000) / 5 = 7400

The dep amount remains same in all the years, therefore 2nd year dep amount is 7400

b. SOYD

Depreciation rate = Year value / Sum of all the years

Sum of years = 1+2+3+4+5 = 15

Third year dep rate = (3/15) *100 = 20%

Dep amount in 3rd year = (43000-6000) x 20% =  7400

c. DDB

Dep rate = 100% / 5 years x 2= 40%

Year	Beg value	Dep rate	Dep amount	Ending value
1	43000	40%	17200	25800
2	25800	40%	10320	15480
3	15480	40%	6192	9288
4	9288	40%	3715.2	5572.8

4th year dep amount is 3715.2

d. MACRS depreciation

Using MACRS depreciation table, the value for 5th year is 11.52

Dep amount = 43000 x 11.52% = 4953.6

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