Question

MACRS depreciates automobiles in 6 years using these percents:

20% the first year;

32% the second year;

19.2% the third year;

11.52% the fourth and fifth years; and

5.76% the sixth year.


For an automobile that cost $30,000, what is the book value at the end of the third year? (Hint: To start, calculate the annual and accumulated depreciation for the first three years.)

Answer 1

The book value at the end of the third year is $8640.

Explanation:

Book value at end of year = Original Cost - Accumulated Depreciation

The automobile cost is $30000.

After 1st year, the depreciation will be =
`0.20*30000=6000`

After 2nd year the depreciation will be =
`0.32*30000=9600` dollars

Similarly after 3rd year the depreciation will be =
`0.192*30000=5760`

Now, adding all the depreciation amounts:

`6000+9600+5760=21360` dollars

Book Value at end of year =
`30000-21360=8640` dollars

Therefore, the book value at the end of the third year is $8640.

Answer 2

Given that the book value of the automobile that was purchased is 30,000 and is to be depreciated for 3 years using MACRS method of depreciation the value of the automobile at the end of the year is 8,640 dollars.  This is computed by summing up the depreciation for the firswt 3 years which is equal to 71.2 per cent less 100 then it will be multiply to 30,000.