According to the current tax laws the initial depreciation value of the asset is?

Question

A firm purchased an asset with a 5-year life for $80,000, and it cost $5,000 for shipping and $10,000 for installation.

a) $95,000

b) $90,000

c) $85,000

d) $80,000

Explain your answer

Answer 1

The answer is a, but assuming MACRS, 200DBHY the depreciation is:

Year     Cost            %        Depr.

1           950000     .20       $19000

2           950000     .32       $30400

3           950000     .192     $18240

4           950000     .1152   $10944

5           950000     .1152   $10944

6           950000     .0576    $ 5472

Answer 2

The initial basis for depreciation is a 95,000.

Most of the costs in getting an asset ready for its intended use, i.e. shipping , installation, and cost are a part of the cost of asset and therefore the depreciable basis.

Current tax law ( in most cases ) does not take into consderation salvage value.

Answer 3

The answer is a.  The total cost of the depreciable property is 80 + 5 + 10 =95,000.  Depreciation would be $19, 000 per year.  This is assuming there is no scrap value at the end of the depreciation.