Question

# An electrical appliance company purchased an industrial robot costing \$400,000 in year 0. The industrial robot,...

An electrical appliance company purchased an industrial robot costing \$400,000 in year 0. The industrial robot, to be used for welding operations, is classified as a sevenyear MACRS recovery property. If the robot is to be sold after four years at a salvage value of \$250,000, compute the amount of gain taxes, assuming that both capital gains and ordinary incomes are taxes at 30%

MACRS depreciation schedule and accumulated depreciation for first 4 years is as follows.

 Year Depreciation Base (\$) Depreciation rate (%) Annual Depreciation (\$) (A) (B) (A) x (B) 1 4,00,000 14.29 57,160 2 4,00,000 24.49 97,960 3 4,00,000 17.49 69,960 4 4,00,000 12.49 49,960 Accumulated Depreciation (\$) = 2,75,040

After 4 years,

Book value (\$) = Initial cost - Accumulated depreciation = 400,000 - 275,040 = 124,960

Gain on sale (\$) = Salvage value - Book value = 250,000 - 124,960 = 125,040

Tax of gain (\$) = Gain on sale x Tax rate = 125,040 x 30% = 37,512

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