Talia’s Tutus bought a new sewing machine for $90,000 that will be depreciated over 5 years using double-declining-balance depreciation with a switch to straight-line. a. Find the depreciation charge each year. b. If the sewing machine is sold after 2 years for $55,000, what will

Talia’s Tutus bought a new sewing machine for $90,000 that will be depreciated over 5 years using double-declining-balance depreciation with a switch to straight-line. a. Find the depreciation charge each year. b. If the sewing machine is sold after 2 years for $55,000, what will

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Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 5PROB

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

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Talia’s Tutus bought a new sewing machine for $90,000 that will be depreciated over 5 years using double-declining-balance depreciation with a switch to straight-line.

a. Find the depreciation charge each year.

b. If the sewing machine is sold after 2 years for $55,000, what will be the after-tax proceeds on the sale if the firm’s tax bracket is 35%?

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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