Question
1) Ben and Jerry's Inc. is considering the purchase of a secondhand milkshake equipment at a cost of $10,500, with an estimated salvage value of
1) Ben and Jerry's Inc. is considering the purchase of a secondhand milkshake equipment at a cost of $10,500, with an estimated salvage value of $500 and a projected useful life of 4 years. Determine the straight line (SL), sum-of-years'-digits (SOYD) and double declining balance (DDB) depreciation schedules.
2) A large profitable corporation (Google) bought a small jet plane for use by the firm's executives in January. The plane's initial cost was $1.5 million and for depreciation purposes the company assumes the salvage value will be $400,000. Calculate the depreciation schedule using a 5-year MACRS property life.
3) De Beers Jewelry purchased a crystal extraction machine for $50,000 that has an estimated salvage value of $10,000 at the end of its 8-year useful life. Compute the depreciation schedule using:
a) Straight-line (SL)
b) Double declining balance depreciation
c) MACRS depreciation
4) A small used delivery van can be purchased for $20,000. At the end of its useful like (8 years), the van can be sold for $3,000. Determine the present value (present worth) of the depreciation schedule, assuming a 15% interest rate, using:
a) Straight-line (SL)
b) Double declining balance depreciation
c) MACRS depreciation (Assume a 5-yr MACRS property class)
5) Assume that an equipment costing $900,000 has been purchased for use in a sand and gravel pit. The pit will operate for 5 years, while a nearby construction is in progress and will shut down when this construction finalizes. The pit will be shut down and sold for $70,000. Compute the unit of production (UOP) depreciation schedule if that construction schedules for 40,000 m3 of sand and gravel using the following:
Year Required Gravel and Sand (m3)
1 4,000
2 8,000
3 16,000
4 8,000
5 4,000
Class DepreciationPeriod Description
3-year property 3 years
Tractor units for over-the-road use, race horses over 2 years old when placed in service, any other horse over 12 years old when placed in service, qualified rent-to-own property
5-year property 5 years
Automobiles, taxis, buses, trucks, computers and peripheral equipment, office equipment, any property used in research and experimentation, breeding cattle and dairy cattle, appliances & etc. used in residential rental real estate activity, certain green energy property.
7-year property 7 years
Office furniture and fixtures, agricultural machinery and equipment, any property not designated as being in another class, natural gas gathering lines
10-year property 10 years
Vessels, barges, tugs, single-purpose agricultural or horticultural structures, trees/vines bearing fruits or nuts, qualified small electric meter and smart electric grid systems
15-year property 15 years
Certain land improvements (such as shrubbery, fences, roads, sidewalks and bridges), retail motor fuels outlets, municipal wastewater treatment plants, clearing and grading land improvements for gas utility property, electric transmission property, natural gas distribution lines
20-year property 20 years
Farm buildings (other than those noted under 10-year property), municipal sewers not categorized as 25-year property, the initial clearing and grading of land for electric utility transmission and distribution plants
25-year property 25 years
Property that is an integral part of the water distribution facilities, municipal sewers
Residential rental property 27.5 years
Any building or structure where 80% or more of its gross rental income is from dwelling units
Nonresidential real property 39 years
An office building, store, or warehouse that is not residential property or has a class life of less than 27.5 years
MACRS GDS percentage rate:
Recovery Year 3-yearclass 5-yearclass 7-yearclass 10-year 15-year20ye
1 33.33 20.00 14.29 10.00 5.00 3.750
2 44.45 32.00 24.49 18.00 9.50 7.219
3 *14.81 19.20 17.49 14.40 8.55 6.677
4 7.41 *11.52 12.49 11.52 7.70 6.177
5 11.52 *8.93 9.22 6.93 5.713
6 5.76 8.92 7.37 6.23 5.285
7 8.93 *6.55 *5.90 4.888
8 4.46 6.55 5.90 4.522
9 6.56 5.91 *4.462
10 6.55 5.90 4.461
11 3.28 5.91 4.462
12-15 5.90 4.461
16 2.95 4.461
17-20 4.462
21 2.231
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