Adam’s mowing Limited purchased a group of new lawnmowers for $26,000 at 1 July 2020. As the accountant of the business, you have estimated that the mowers are to last five yearsand to have $650 residual value at that point. The entity’s business plan projects cutting 6,000 lawns over the five years, with per-year projections of 650, 1,300, 1,460, 2,140 and 550 lawns over the five years. Required: b) You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity. Provide appropriate response to the owner’s question and request.
Adam’s mowing Limited purchased a group of new lawnmowers for $26,000 at 1 July 2020. As the accountant of the business, you have estimated that the mowers are to last five yearsand to have $650 residual value at that point. The entity’s business plan projects cutting 6,000 lawns over the five years, with per-year projections of 650, 1,300, 1,460, 2,140 and 550 lawns over the five years. Required: b) You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity. Provide appropriate response to the owner’s question and request.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Adam’s mowing Limited purchased a group of new lawnmowers for $26,000 at 1 July 2020. As the accountant of the business, you have estimated that the mowers are to last five yearsand to have $650 residual value at that point. The entity’s business plan projects cutting 6,000 lawns over the five years, with per-year projections of 650, 1,300, 1,460, 2,140 and 550 lawns over the five years.
Required:
b) You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity. Provide appropriate response to the owner’s question and request.
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