Two years ago you purchased a Suburban to use as an Uber vehicle. The purchase price of the Suburban was $58,000 and you have depreciated the Suburban using a 5-year MACRS schedule. To date, you have recognized two periods of depreciation. Recovery Year Depreciation Percentage 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76% You are debating about selling the Suburban to pursue a new business venture. How much are you going to receive after-tax if you sell the Suburban for $32,000 if your tax rate is 35%?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
|
Recovery Year |
Depreciation Percentage |
|
1 |
20.00% |
|
2 |
32.00% |
|
3 |
19.20% |
|
4 |
11.52% |
|
5 |
11.52% |
|
6 |
5.76% |
| Year | Depreciation rate | Depreciation | Remaining value |
| 1 | 20.00% | $58,000*20%=$11,600 | $58,000-$11,600=$46,400 |
| 2 | 32.00% | $46,400*32%=$14,848 | $46,400-$14,848=$31,552 |
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