Question

Ramco Tooling purchased new equipment on January 1, Year 1 for $100,000. in Year 1, Ramco...

Ramco Tooling purchased new equipment on January 1, Year 1 for $100,000. in Year 1, Ramco took $20,000 in sec. 179 expense on the equipment and $40,000 in bonus depreciation on the equipment. In addition, it took $15,000 in regular MACRS depreciation on the equipment in Year 1.

For book purposes, Ramco estimates the useful life of the equipment is 5 years and uses straight line depreciation.

For the following scenario, determine the dollar amount of book-tax difference (if any) written as a positive number.
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Answer #1

Ans:

Calculation of Book Tax Difference :

Tax Depreciation :

Section 179 Depreciation : $20,000

Bonus Depreciation : $40,000

Normal Depreciation : $15,000

Total Tax Depreciation : $20,000 + $40,000 + $15,000 = $75,000

Book Value of assets : $100,000

Depreciation for 1 year using SLM method : $100,000 / 5 = $20,000

Book Tax Difference : $75,000 - $20,000 = $55,000

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