New office furniture is being purchased for 12000 and is exp

New office furniture is being purchased for $12,000 and is expected to have $2000 salvage after 10 years. Calculate the depreciation allowances for the first two years using a. Straight-Line depreciation b. MACRS depreciation

Solution

(a)

Straight-Line (SLM) annual depreciation = (Cost - Salvage value) / Useful life = $(12,000 - 2,000)/10 = $10,000/10

= $1,000

Depreciation allowance, year 1 = $1,000

Depreciation allowance, year 2 = $1,000

(b)

MACRS method ignores salvage value and cost base is equal to purchase cost. Using MACRS schedule for 10-year useful life,

Depreciation allowance, year 1 = $12,000 x 10% = $1,200

Depreciation allowance, year 1 = $12,000 x 18% = $2,160