Question

Kimley-Horn and Associates, Inc. recently purchased $200,000 worth of office equipment that qualifies as depreciable property. The equipment is estimated to have a salvage (market) value of $40,000 (20% of the original cost) after the end of its depreciable life. Compute and tabulate the depreciation allowances and book values for the equipment.

Answer 1

As per IRS,office equipment/machinery has a recovery life of 5 years and half-year convention. The rates,depreciation amount and book value is given in the following table:

year	Depreciation Rate	Depreciation Amount	Book Value
1	20%	40000	160000
2	32%	64000	96000
3	19.20%	38400	57600
4	11.52%	23040	34560
5	11.52%	23040	11520
6	5.76%	11520	0

Note 1:book value for year 1= original cost-current year depreciation

book value for year 2 to year 6= book value at the end of previous year-current year depreciation

Note 2: MACRS fully depreciates property;salvage value is not used to adjust the basis.

Note 3: Since the half year convention is used ,depreciation is charged for half-year in the 6th year of the asset