Reference: 10-04
The Finney Company is reviewing the possibility of remodelling one of its showrooms and buying some new equipment to improve sales operations. The remodelling would cost $120,000 now and the useful life of the project is 10 years. Additional working capital needed immediately for this project would be $30,000; the working capital would be released for use elsewhere at the end of the 10-year period. The equipment and other materials used in the project would have a salvage value of $10,000 in 10 years. Finney's discount rate is 16%.
-Equipment purchased on the last day of a company's fiscal year for a total cost of $10,000 is in a capital asset class that has a 10% per annual depreciation rate allowed for tax purposes. In the year of acquisition of this asset, the allowable tax deduction will be:

Question

Quizplus · Accepted Answer

Since the equipment is purchased on the last day of the fiscal year, the company can only claim half-year depreciation in the year of acquisition. With a 10% annual depreciation rate on a $10,000 asset, the full year's depreciation would be $1,000. Therefore, for half a year, it's $1,000 * 0.5 = $500.

Reference: 10-04 The Finney Company Is Reviewing the Possibility of Remodelling One