Question 1

Jain Mart is to depreciate an asset bought for $500,000 using the SOYD method over a life of 8 years. If the depreciation charges in year 3 was $80,000, determine the salvage value used in computing the depreciation charges in year 3.

Accepted Answer

B

Question 2

An equipment at MNS Systems costing $600,000 was depreciated using the double declining balance (DDB) method. In year four, the company decided switch to the straight-line depreciation method. Determine the depreciation charges in year 4. Assume a depreciable life of 10 years and a salvage value of $63,331.

Accepted Answer

The depreciation charge in year 4 using the straight-line method is calculated as follows:Depreciation charge = (Cost - Salvage value) / Depreciable life= (600,000 - 63,331) / 10= $536,669 / 10= $53,667Therefore, the depreciation charge in year 4 is $53,667.

Question 3

An equipment bought at cost of $Y will be depreciated using either the SOYD (sum- of -years - digit method) or SL (straight-line) method. This equipment will be depreciated over a period of 5 years with a salvage value of $X. Determine the percentage increase in depreciation charges in year 2 for the SOYD method over the SL method.

Accepted Answer

In the SOYD method, the depreciation for year 2 is calculated as (4/15) * (Y-X), while in the SL method, it is (1/5) * (Y-X). The percentage increase is [(4/15 - 1/5) / (1/5)] * 100% = 33.33%.

Question 4

An income producing asset costing $120,000 is being depreciated using the 150% Declining Balance method with a salvage value of $20,000, determine the depreciation in year 3 assuming the equipment will be depreciated over a life of 5 years.

Accepted Answer

The 150% Declining Balance method is a form of accelerated depreciation that results in a higher depreciation expense in the early years of an asset's life. The depreciation rate for the 150% Declining Balance method is 150% divided by the asset's useful life. In this case, the asset's useful life is 5 years, so the depreciation rate is 150% / 5 = 30%.The depreciation expense for year 3 is calculated as follows:Depreciation expense = (Depreciation rate * Book value) - Salvage valueDepreciation expense = (30% * $67,500) - $20,000Depreciation expense = $17,640Therefore, the depreciation expense for year 3 is $17,640.

Question 5

An automated inspection system purchased at a cost of $200,000 by Mega Tech Engineering was depreciated using the MACRS method. The system was sold after 4 years for $150,000. Determine the depreciation recapture on this equipment.

Accepted Answer

The answer of An automated inspection system purchased at a...

Question 6

Paragon Properties built a shopping center at a cost of $50M in year 2010. The company started leasing space in July of 2014. The land was purchased for $5M. Determine the depreciation charges through 2017 if the property was sold in November 2017.

Accepted Answer

The answer of Paragon Properties built a shopping center at...

Question 7

Case Study 11.7
Given:
Initial Cost, P = $50,000 Salvage Value at the end of 5 years, S = $10,000.
Depreciable Life, N= 5 Years
 $$\begin{array} { | l | l | l | } 
\hline \text { Year } & \begin{array} { l } 
\text { Projected } \
\text { Production, units }
\end{array} & \begin{array} { l } 
\text { Actual } \
\text { Production, units }
\end{array} \
\hline 1 & 4,500 & 5,000 \
\hline 2 & 5,000 & 4,000 \
\hline 3 & 3,500 & 3,000 \
\hline 4 & 5,500 & 5,000 \
\hline 5 & 6,500 & \text { Not krown } \
\hline \text { Total } & \mathbf { 2 5 , 0 0 0 } & \
\hline
\end{array}$$
-Determine the depreciation in year 4 using the UOP method.

Accepted Answer

The answer of Case Study 11.7
Given:
Initial Cost, P = $50,000...

Question 8

Case Study 11.7
Given:
Initial Cost, P = $50,000 Salvage Value at the end of 5 years, S = $10,000.
Depreciable Life, N= 5 Years
 $$\begin{array} { | l | l | l | } 
\hline \text { Year } & \begin{array} { l } 
\text { Projected } \
\text { Production, units }
\end{array} & \begin{array} { l } 
\text { Actual } \
\text { Production, units }
\end{array} \
\hline 1 & 4,500 & 5,000 \
\hline 2 & 5,000 & 4,000 \
\hline 3 & 3,500 & 3,000 \
\hline 4 & 5,500 & 5,000 \
\hline 5 & 6,500 & \text { Not krown } \
\hline \text { Total } & \mathbf { 2 5 , 0 0 0 } & \
\hline
\end{array}$$
-If the equipment in problem 11.7 is sold at the end of year 4 for $30,000, what is the depreciation recapture on this equipment?

Accepted Answer

The book value at the end of year 4 is calculated using straight-line depreciation: ($50,000 - $10,000) / 5 * 4 = $32,000. The equipment is sold for $30,000, so the depreciation recapture is $32,000 - $30,000 = $2,000. However, the correct choice is $7,200, which suggests a different calculation or error in the problem setup.

Question 9

ABC Inc., a profitable corporation, purchased equipment for $20,000. The equipment may be depreciated using the following two depreciation methods for 5 years with a salvage value of $5,000.
The two methods are:
i. DDB
ii. SOYD
Develop depreciation schedules for both the methods.

Accepted Answer

The answer of ABC Inc., a profitable corporation, purchased equipment...

Question 10

Case Study 11.10
The initial investment on a commercial building was $1M excluding the land. The building was occupied in March of the year in which it was purchased. After 10 years, the property was sold in the 11th year on September 2017 for $2M. The land cost was appraised at $100,000 for tax purposes.
-A. Determine the first year depreciation of the building.
B. What is the depreciation for the year in which the property is disposed?
C. What is the depreciation recapture for this asset?
D. What is the capital gain on this asset?

Accepted Answer

B) 18,190
C) $269,280
D) $900,000
 A) Depreciation in year 1 = 0.02033*(1M) = $20,330
B) Depreciation in year 11 = 0.01819*(1M) = 18,190
C) Depreciation Recapture = [0.02033 + 0.01819 + 9*(0.02564)] * 1M = $269,280
D)Capital Gain = 2M - 1M - 100,000 = $900,000.

Question 11

Determine the depletion charges using the percentage depletion method for the first year only for a coal mine. The applicable rate for the percentage depletion method is 10%. Cost to acquire mine rights = $150,000
Estimated mine size = 40,000 Tons
Selling price = $80 per Ton
Amount sold in year 1 = 2,000 Tons
Operating cost in year 1 = $50,000

Accepted Answer

Depletion charges in year 1 = (0.10) (2,000) (80) = $16,000
Taxable income in year 1 = 2,000(80) - 50,000 = $110,000
50% of taxable income = 0.50(110,000) = $55,000
Allowable depletion charges in year 1 = Minimum of (16,000; 55,000) = $16,000

Question 12

Land is a depreciable asset as land appreciates overtime.

Accepted Answer

Land is not a depreciable asset because it does not wear out or get used up over time; instead, it often appreciates in value.

Question 13

If an asset is sold before the end of its useful life for more than its salvage value, the difference between the two amounts is defined as capital gain for tax accounting.

Accepted Answer

The answer of If an asset is sold before the...

Question 14

An asset was sold for $50,000 at the end of its useful life of 7 years. The equipment was bought for $400,000. If it has been depreciated as a 7-year MACRS property, the depreciation recapture on this property is $50,000.

Accepted Answer

The depreciation recapture is the difference between the sale price and the adjusted basis (original cost minus accumulated depreciation). Under MACRS, the asset would be fully depreciated over 7 years, so the adjusted basis would be $0. The entire sale price of $50,000 would be subject to depreciation recapture, not just $50,000.

Question 15

Depreciation may be caused by obsolescence.

Accepted Answer

Depreciation can occur when an asset becomes outdated or less useful due to technological advancements or changes in market demand, which is known as obsolescence.

Question 16

The straight - line (SL) method is often used for intangible property such as patents.

Accepted Answer

The straight-line method is commonly used for amortizing intangible assets like patents, spreading the cost evenly over the asset's useful life.

Quiz 11: Depreciation