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4.4 Depreciation

4.4 Depreciation
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  • 1. Hair Salon Equipment Depreciation

    The owner of a hair salon buys new equipment.

    Cost: $1100

    Salvage value: $400

    Useful life: 7 years

    Make a straight-line depreciation schedule for the equipment. (See Example 1 and Example 2.)

    A spreadsheet is available to help you complete this exercise.

    • Worked-Out Solution

      The depreciation each year is

      A spreadsheet showing the depreciation schedule is shown below.

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                 ___               __   __    ______  
  ____      / _ \\      ___    \ \\/ //  /_   _// 
 |    \\   / //\ \\    /   ||   \ ` //     | ||   
 | [] ||  |  ___  ||  | [] ||    | ||     _| ||   
 |  __//  |_||  |_||   \__ ||    |_||    /__//    
 |_|`-`   `-`   `-`     -|_||    `-`'    `--`     
 `-`                     `-`
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  • 2. Hair Salon Equipment Depreciation

    The owner of a hair salon buys new equipment.

    Cost: $14,500

    Salvage value: $2500

    Useful life: 10 years

    Make a straight-line depreciation schedule for the equipment. (See Example 1 and Example 2.)

    A spreadsheet is available to help you complete this exercise.

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     _    _      ___     __   _     _____    _____    
| \  / ||   / _ \\  | || | ||  |  ___|| |  __ \\  
|  \/  ||  / //\ \\ | '--' ||  | ||__   | |  \ || 
| .  . || |  ___  ||| .--. ||  | ||__   | |__/ || 
|_|\/|_|| |_||  |_|||_|| |_||  |_____|| |_____//  
`-`  `-`  `-`   `-` `-`  `-`   `-----`   -----`
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  • 3. Barbershop Equipment Depreciation

    The owner of a barbershop buys new equipment. A graph of the straight-line depreciation schedule for the equipment is shown. What is the value of the equipment after 5 years? (See Example 1 and Example 2.)

    • Worked-Out Solution

      From the graph, the value after 5 years appears to be about $5000.

      You can check this by making a depreciation schedule.

      Cost: $10,000

      Salvage value: $2000

      Useful life: 8 years

      The annual depreciation is

      A spreadsheet showing the depreciation schedule is shown below.

      From the schedule, you can see that the value after 5 years is exactly $5000.

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     _    _    __   __    ______    _____    __   _   
| \  / ||  \ \\/ //  /_____//  |  ___|| | || | || 
|  \/  ||   \ ` //   `____ `   | ||__   | '--' || 
| .  . ||    | ||    /___//    | ||__   | .--. || 
|_|\/|_||    |_||    `__ `     |_____|| |_|| |_|| 
`-`  `-`     `-`'    /_//      `-----`  `-`  `-`  
                     `-`
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  • 4. Barbershop Equipment Depreciation

    The owner of a barbershop buys new equipment. A graph of the straight-line depreciation schedule for the equipment is shown. What is the value of the equipment after 7 years?

    (See Example 1 and Example 2.)

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      ______    _____     _____     _____      _____  
 /_   _//  |  ___||  / ____||  |  ___||   / ___// 
 `-| |,-   | ||__   / //---`'  | ||__     \___ \\ 
   | ||    | ||__   \ \\___    | ||__     /    // 
   |_||    |_____||  \_____||  |_____||  /____//  
   `-`'    `-----`    `----`   `-----`  `-----`
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  • 5. Depreciation Recapture

    When a business sells equipment at a price greater than its value, the U.S. Internal Revenue Service collects taxes on the difference. This is called depreciation recapture. Find the taxable amount for each year in which depreciation recapture could occur for a selling price of $6000. (See Example 1 and Example 2.)

    • Worked-Out Solution

      Begin by making a depreciation schedule.

      Cost: $10,000

      Salvage value: $2000

      Useful life: 8 years

      The annual depreciation is

      After making a depreciation schedule, add a 5th column that shows the excess on which taxes must be paid.

      A spreadsheet showing the depreciation schedule is shown below.

      So, if the equipment is sold in (or after) Year 5, the business must pay tax on part of the sale price.

    Comments (1)

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      ______     ___      _____     _____      _____  
 /_____//   / _ \\   |__  //   |  ___||   / ___// 
 `____ `   | / \ ||    / //    | ||__     \___ \\ 
 /___//    | \_/ ||   / //__   | ||__     /    // 
 `__ `      \___//   /_____||  |_____||  /____//  
 /_//       `---`    `-----`   `-----`  `-----`   
 `-`
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    system user
    Guest   5 years ago |
    Hi, I would like to ask what's the point of collecting taxes on the difference?
    0
  • 6. Tax Deductions

    When a business sells equipment at a price less than its value, the difference is tax deductible. Find the tax deductible amount for each year in which a selling price of $4000 would cause a loss.

    (See Example 1 and Example 2.)

    data folder

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      ____       ___     _    _    __   __            
 |  _ \\    / _ \\  | |  | ||  \ \\/ //     ___   
 | |_| ||  / //\ \\ | |/\| ||   \ ` //     /   || 
 | .  //  |  ___  |||  /\  ||    | ||     | [] || 
 |_|\_\\  |_||  |_|||_// \_||    |_||      \__ || 
 `-` --`  `-`   `-` `-`   `-`    `-`'       -|_|| 
                                             `-`
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