Question

Equipment was purchased for $250,000 plus $500 in freight charges. Installation costs were $750 and sales tax totaled $18,750. Hiring a special consultant to provide advice during the selection of the equipment cost $500. What is this asset's depreciable basis?

Answer 1

The asset's depreciable basis is:

= $270,500

Step-by-step explanation:

a) Data and Calculations:

Equipment purchase cost = $250,000

Freight charges = 500

Installation costs = 750

Sales tax 18,750

Special consultant fee 500

Total acquisition costs = $270,500

Depreciable basis = Acquisition costs - Salvage value

= $270,500 - $0

= $270,500

b) The depreciable basis is the amount of the asset that is subject to depreciation over its useful life. This amount is obtained by subtracting the salvage value from the acquisition costs. The acquisition costs include the purchase price of an asset plus the costs incurred to put the asset into service, which include any sales taxes, delivery charges, and installation fees.