Question

Sam bought a car to use in his business on June 1, 2019. Same did not buy any other assets in year 2019. What is Sam’s depreciation expense for year 2019? 2020? How would your answer change is Sam only uses the car 75% for business and uses it 25% for personal purposes?

Answer 1

The depreciation for Sam's Business = Rate of depreciation*Purchase Cost of Car on written down value method.

Assuming the Rate of depreciation = 20% and the Purchase cost = $100,000

Then, Depreciation for the year 2019 = 100,000*20% = $20,000

Depreciation for the year 2020 = (100,000-20,000)*20% = $16,000

And so on for the other years.

Yes, the amount of deprecation would change when Sam uses only 75% for business purposes. In the assessment for the business the purchase cost will be taken only for 75% (i.e) for 100,000 only 75,000 will used to calculate depreciation. Demonstration:

Purchase cost = 100,000

Purchase cost for deprecation = 100,000 *75%

= $75,000

Depreciation for year 2019 = $75,000*20% = $15,000

The rest of the 25% of the purchase cost will be depreciated in the assessment of Sam's personal Income.