An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $60,000, and it has an estimated MV of $14,000 at the end of an estimated useful life of 14 years. Compute the depreciation amount in the third year and the BV at the end of the sixth year of life by each of these methods: a. The SL method. b. The 200% DB method with switchover to SL. c. The GDS. d. The ADS.
An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $60,000, and it has an estimated MV of $14,000 at the end of an estimated useful life of 14 years. Compute the depreciation amount in the third year and the BV at the end of the sixth year of life by each of these methods: a. The SL method. b. The 200% DB method with switchover to SL. c. The GDS. d. The ADS.
Chapter7: Deductions And Losses: Certain Business Expenses And Losses
Section: Chapter Questions
Problem 48P
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Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $60,000, and it has an estimated MV of $14,000 at the end of an estimated useful life of 14 years. Compute the depreciation amount in the third year and the BV at the end of the
sixth year of life by each of these methods:
a. The SL method.
b. The 200% DB method with switchover to SL.
c. The GDS.
d. The ADS.
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GDS Recovery Rates (r,) for the Six Personal Property Classes
Recovery Period (and Property Class)
15-year
0.0500
0.0950
0.0855
0.0770
MACRS Class Lives and Recovery Periods
20-year
0.0375
0.0722
0.0668
0.0618
0.0571
0.0528
0.0489
0.0452
5-year
0.2000
Year
3-year
0.3333
0.4445
7-year
10-year
Recovery Periods
ADS
1
0.1429
0.1000
Asset Class
Descriptions of Assets
Class Life
GDS
2
0.3200
0.1920
0.1152
0.1152
0.0576
0.2449
0.1749
0.1249
0.1800
0.1440
0.1152
0.0922
Office furniture and equipment
Information systems, including computers
Automobiles, taxis
Buses
Light general purpose trucks
Heavy general purpose trucks
Tractor units for use over the road
00.11
10
7
10
3
0.1481
00.12
6
4
0.0741
00.22
3
5
0.0693
0.0623
0.0590
00.23
00.241
00.242
0.0893
9
5
9
0.0892
0.0893
0.0446
0.0737
4
5
0.0655
0.0655
0.0656
0.0655
7
6
8
0.0590
00.26
4
3
4
9
0.0591
0.0590
0.0591
0.0447
01.1
Agriculture
Mining
Production of petroleum and natural gas
Petroleum refining
10
7
10
0.0447
0.0446
10
10.0
10
10
11
0.0328
13.2
14
7
14
12
0.0590
0.0446
13.3
16
10
16
0.0446
0.0446
0.0446
13
0.0591
15.0
Construction
0.0590
0.0591
Manufacture of carpets
Manufacture of wood products and furniture
Manufacture of chemicals and allied products
Manufacture of rubber products
Manufacture of cement
Manufacture of fabricated metal products
Manufacture of electronic components, products, and systems
Manufacture of motor vehicles
Manufacture of aerospace products
Telephone central office equipment
Electric utility steam production plant
Gas utility distribution facilities
Recreation
22.3
24.4
14
15
10
10
28.0
9.5
9.5
0.0446
0.0446
0.0446
0.0446
0.0446
0.0223
16
0.0295
17
30.1
14
14
32.2
34.0
36.0
37.11
18
20
15
20
19
12
12
20
6
21
12
12
37.2
48.12
10
10
18
18
These rates are determined by applying the 200% DB method (with switchover to the SL method) to the
recovery period with the half-year convention applied to the first and last years. Rates for each period must
sum to 1.0000.
"These rates are determined with the 150% DB method instead of the 200% DB method (with switchover to
the SL method) and are rounded off to four decimal places.
49.13
28
20
28
49.21
35
20
35
79.0
10
10
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