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An Asset with a First Cost of $100,000 Is Depreciated

Question 3

Essay

An asset with a first cost of $100,000 is depreciated over 5-year period. It is expected to have a $5,000 salvage
value at the end of 5 years.
(a) Using the straight-line method, what is the book value at the end of year 2?
(b) With the double declining balance (200% DB) schedule, what is the depreciation charge for year 5?
(c) In (b) above, suppose the estimated salvage value at the end of year 5 is $10,000, instead of $5,000. If the
200% DB method is used, what is the allowed depreciation charge for year 5?
(d) In (c) above, assume that the asset is classified as a 5-year MACRS property for tax depreciation purpose.
What is the book value of the asset at the end of year 3?

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