An energy production company has the following information regarding the acquisi
ID: 2794086 • Letter: A
Question
An energy production company has the following information regarding the acquisition of new gas-turbine equipment.
Purchase price = $780,000
Transoceanic shipping and delivery cost = $4,300
Installation cost (1 technician at $2,000 per day for 4 days) = $6,400
Tax recovery period = 16 years
Book depreciation recovery period = 8 years
Salvage value = 12% of purchase price
Operating cost (with technician) = $185,000 per year
The manager of the department asked your friend in accounting to enter the appropriate data into the tax-accounting program. What are the values of B, n, and S in depreciating the asset for tax purposes that he should enter?
The value of B is determined to be $ .
The value of S is determined to be $ .
The value of n is determined to be years.
Explanation / Answer
Answer:
1. Asset Cost basis: $. 790, 700.
2. Salvage Value: $ 93,600.
3. Book Depreciation: There are different depreciation rate under recovery period as under:
Year 1: 14.29%.
Year 2: 24.29%.
Year 3: 17.49%.
Year 4: 12.49%
Year 5: 8.93%
Year 6: 8.92%
Year 7: 8.93%.
Year8: 4.46%.
Book Value of Asset at the end of recovery period: $ 267,374.
4. n = 7 years. Recovery period is 8 years.