Question

On 2 June 2019, Tommy’s Towing Pty Ltd bought a second-hand tow truck for $45,000. The truck is used 95% for business purposes. According to TR2020/3 the effective life of a tow truck is 10 years.

a.       What are the various methods available to calculate depreciation for tommy?

b.       Calculate depreciation based on the methods identified in above question (a).

c.        Which method will help Tommy claim the highest possible depreciation in the 2019/20 income year. Explain your answer with reference relevant tax law.

Answer 1

a. Methods of various depreciation

1. Straight-line depreciation

2 . Written down value method deprecation

b. 1.Deprecation on straight-line method Deprecation = (cost of asset - residual value) /useful life

= (45000*95% ) / 10

= 4275

  2. Deprecation on written down value method

Depreciation= (cost of asset -salvage value) *rate of depreciation

Rate of deprecation= 1-n√salvage value/ cost

= 1-10√ 42750/45000

= 9%

Depreciation = 42750*9%

= 3848

3. Under above methods Tommy can use straight line method for claim highest deprecation.