Chap 10 Depreciation is a decline in market or asset value of physical prop


The Above Picture is Related Image of Another Journal


Chap 10 Depreciation is a decline in market or asset value of physical prop

Clearwater Christian College, US has reference to this Academic Journal, Chap 10 Depreciation is a decline in market or asset value of physical properties caused by deterioration or obsolescence. It represents a legal loss of value in consideration of tax purposes. Depreciation involves a systematic allocation of the cost of an asset over its depreciable life. The annual depreciation expense is deductible in consideration of income tax calculations. EGR 403, Jan 99 Depreciable property * Tangible 1) Real 2) Personal * Intangible To be depreciable: must be used in business determinable life > 1 year wears out Consider period of service not period of ownership EGR 403, Jan 99 Definitions of Value * Market Value: Cost of a property when both buyer in addition to seller have equal advantage in addition to are under no compulsion so that buy or sell. * Salvage (resale) Value (S): Price that can be obtained from the sale of the property * Book Value: Original cost (P) of a property less the amounts that have been charged as depreciation expense. * Adjusted Basis Value: Book value plus the cost of improvements, additions, in addition to other capital costs, commissions, legal fees, etc. minus certain credits. This value is essential in calculating the taxable profit or loss from the sale of property. EGR 403, Jan 99

 Osborne, Robert Clearwater Christian College


Related University That Contributed for this Journal are Acknowledged in the above Image


Income Statement Jan. 1 so that Dec. 31, 2000 Revenue $300,000 Expenses: Depreciation $60,000 Expenditures $90,000 Taxable income $150,000 Income tax $40,000 Net income after tax $110,000 Engineering Economy: Revenue $300,000 Less expenditures $90,000 Cash flow before tax $210,000 Less tax $40,000 Cash flow after tax $170,000 EGR 403, Jan ?00 Notations: P: initial cost, S: salvage value, N: useful life Depreciation Methods: Straight line (S.L.) Depreciation: Annual depreciation charge = (P-S)/N Book value at end of year n = P – n(P-S)/N n = 1.N Sum-of-Years Digits (SOYD) Depreciation Sum-of-Years Digits = SOYD = N(N+1)/2 Depreciation in consideration of year n = (N-n+1)[(P-S)/SOYD] Declining Balance Depreciation: DDB Depreciation in any year = 2(Book Value)/N = 2(Cost – Depreciation charges so that date)/N Implied Salvage value at the end of N years = P(1 – 2/N) EGR 403, Jan 99 Modified Accelerated Cost Recovery System (MACRS) The newest depreciation method that may be used in consideration of U.S. income tax purposes. Assumptions: DDB alongside switch so that SL, zero salvage value, midpoint life Steps: 1) Determine the property class of the asset. 2) Read the depreciation percentages from the table. EGR 403, Jan 99

To calculate tax: 1- Find taxable income *For individuals = Adjusted gross income – Personal exemptions – Itemized deductions or Standard deductions *For business = Gross income – Expenditures (not capital) – Depreciation 2- Use related tax rates table Find the tax bracket in addition to use its marginal tax rate EGR 403, Jan 00 Economical analysis in consideration of a new equipment: *Initial cost of the equipment is $50,000 depreciated SL in consideration of 3 years >> D = $16,667 *Will generate gross income of $30,000 in addition to expenses of $10,000 (taxable income $20,000) in consideration of 3 years *The marginal tax rate is 34% (i.e. 90,000 current taxable income) Year Cash flow (wrong) Taxable income Tax Net income 1 20000-50000 20000-16667 1133 2200 2 20000 20000-16667ÿ 1133 2200 3 20000 20000-16667 1133 2200 ÿ Year Before tax Taxable Tax after tax cash flow Dep. income . 34% cash flow 0 -50000 -50000 1 20000 16667 20000-16667 1133 18867 2 20000 16667 20000-16667 1133 18867 3 20000 16667 20000-16667 1133 18867 EGR 403, Jan 00 Effect of tax on loan:

Photosynthesis!!!! Summary MMM? Starch

Effect of tax on loan: Loan payment is not an expense, but interest portion is. End of Loan Interest Reduction in Cash flow year payment portion tax t=10% after tax . 1 527.6 200 20 527.6-20 = 507.6 2 527.6 167.24 3 527.6 131.2 4 527.6 91.56 5 527.6 47.96 EGR 403, Jan 00 Income Tax Incremental (Marginal) tax rate Combined Federal in addition to State Income Taxes: Combined incremental tax rate = incremental State tax rate + (incremental Federal tax rate)*(1 – incremental State tax rate) Capital Gains in addition to Losses Capital {gain or loss} = Selling price – Book value EGR 403, Jan 99 Replacement Analysis Defender in addition to Challenger Shall we replace the defender now, or shall we keep it in consideration of one or more additional years? Minimum cost life: number of years at which the EUAC of ownership is minimized. Marginal costs: year-by-year costs EGR 403, Jan 99

Osborne, Robert Managing Editor

Osborne, Robert is from United States and they belong to Managing Editor and work for Lovin Life – Phoenix Edition in the AZ state United States got related to this Particular Article.

Journal Ratings by Clearwater Christian College

This Particular Journal got reviewed and rated by and short form of this particular Institution is US and gave this Journal an Excellent Rating.