Question

Given an asset with initial cost of $20,000, useful life of 5 years, salvage value = 0, find the depreciation allowancesand the book values using the

   a. Straight-Line Method

b. MACRS

NO EXCEL. handwritten explanation.

Answer 1

Under Straight Line method, Value of an Asset is evenly spread across the life of an asset by dividing value of an asset after deducting salvage value by the years of life span.

Straight line Depriciation =( Cost of Asset --salvage Value)/life of an asset

= 20000/5

= 4000

On the other hand, Under MARCS Depriciation is calculated by dividing each years book value of asset by the remaining no. Of years.

Years	Straight Line Method	MARCS Method
1	20000	4000	20000-4000=16000	20000	20000/5=4000	20000-4000=16000
2	16000	4000	16000-4000=12000	16000	16000/4=4000	16000-4000=12000
3	12000	4000	12000-4000=8000	12000	12000/3=4000	12000-4000=8000
4	8000	4000	8000-4000=4000	8000	8000/2=4000	8000-4000=4000
5	4000	4000	4000-4000	4000	4000/1=4000	4000-4000=0