ABC Inc purchased some new machinery three years ago for 270

ABC, Inc purchased some new machinery three years ago for $270,743. Today, it is selling this machinery for $40,214. What is the After-tax Salvage Value of the new machinery? Assume that the tax rate is 29%. The MACRS allowance percentages are as follows, starting with Year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Solution

Particulars Amount a Sale proceeds        40,214 b Less: net book value        77,974 c=a-b Gain/(loss) on disposal       -37,760 d= c*29% tax benefit@ 29%       -10,950 e= c-d After tax salvage value       -26,810 Net book value Particulars Amount cost of asset     2,70,743 Less: accumulated depreciation     1,92,769 Net book value        77,974 Accumulated depreciation Cost     2,70,743 Depreciation for 3 years: 1st year rate 20% 2nd year rate 32% 3rd year rate 19.2% Total depreciation taken 71.2% Depreciation amount     1,92,769