Depreciation Problems

1. Some special handling devices can be obtained for $12,000. At the end of 4
years, they can be sold for $600. Compute the depreciation schedule for the
devices using the following methods:
a. Straight-line depreciation
Answer:
Depreciation = (Cost-Salvage Value)/Useful Life
Depreciation =( $12000-600)/4
Depreciation = 2850

2. The RX Drug Company has just purchased an encapsulating machine for $76,000.
The plant engineer estimates the machine has a useful life of 5 years and little or no
salvage value. He will use zero salvage value in the computation.
a. Compute the depreciation schedule for the machine using straight-line depreciation.
Answer:
Depreciable cost = Cost Salvage Value
Depreciable cost = 76000-0 = 76000
Depreciation rate = 1/Useful life x 100
Depreciation rate = (1/5 x 100) = 20%
Depreciation schedule

Year

Beginnin
g
Balance

Depreci
able
cost

76000

76000

60800

76000

45600

76000

30400

76000

15200

76000

Rate
20.00
%
20.00
%
20.00
%
20.00
%
20.00
%

Deprecia
tion
Expense

Accumula
ted
Deprecia
tion

Ending
Balance

15200

15200

60800

15200

30400

45600

15200

45600

30400

15200

60800

15200

15200

76000

3. Use the MACRS method to calculate the yearly depreciation allowances and book
values for a firm that has purchased $150,000 worth of office equipment that qualifies as
depreciable property. This is considered 7-year property.
The MACRS depreciation percentages for 7-year personal property are given below.
Recovery Year 7-Year Property
1
14.29%
2
24.49
3
17.49
4
12.49
5
8.93
6
8.92
7
8.93
8
4.46
Answer:
Year
1
2
3
4
5
6
7
8

Deprecia
tion
Expense

Accumula
ted
Depreciat
ion

Ending
Balanc
e

21,429

21,429

128,571

36,735

58,163

91,837

26,240

84,402

65,598

18,743

103,145

46,855

8.93%

13,388

116,532

33,468

8.93%

13,388

129,919

20,081

8.93%

13,388

143,306

6,694

4.46%

6,693

150,000

Basis

rate

150,0
00
150,0
00
150,0
00
150,0
00
150,0
00
150,0
00
150,0
00
150,0
00

14.29
%
24.49
%
17.49
%
12.50
%