Question

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%

Answer 1

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