Question

An asset is to be depreciated using MACRS and a 3-year recovery period. The applicable % rates are given below.

MACRS is an accelerated depreciation system. Why then is r₁ is less than r₂?

t	rt (%)
1	33.33
2	44.45
3	14.81
4	7.41

Group of answer choices

r2 is multiplied by BV1, not B, to obtain d2

The table above is incorrect

Only one-half year depreciation may be taken in year 1

To account for possible salvage value

Answer 1

In MACRS, it is assumed that the asset was put into service after completing half the year. Hence, we reduce the depreciation amount to half in the first year. This is a simple assumption made my the MACRS depreciation method so that we don't have to remember the exact date when the asset was put into service.

Hence, even though the MACRS is an accelerated depreciation system, r1 is less than r2 because-

Only one-half year depreciation may be taken in year 1.

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