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2 June, 20:19

Del Norte Brick Co. is located near the intersection of Texas, New Mexico, and Mexico. Improved access to the company's property is via a small bridge across the Rio Grande. The cost of the bridge was $780,000. Determine the depreciation and book value for year 3 according to the MACRS (Modified Accelerated Cost Recovery System) method.

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  1. 2 June, 21:45
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    Depreciation for year 3 = $115518

    BV = $57798

    Explanation:

    The modified accelerated cost recovery method employees a classification-based approach to depreciating certain assets, once classified are assigned respective rates of depreciation. for example, assets classified under automobiles, trucks and machinery are treated under 5-year MACRS and will be depreciated at 20%, 32%, 19.2% and so on.

    In this question the bridge across Rio Grande being built by Del Norte Brick co is treated under 3-year MACRS, for which the rates are as follows:

    33.33% for the first year

    44.45% 2nd year

    14.81% 3rd year

    7.41% 4th year

    We have been asked to determine 3rd years' depreciation and book value, determined as follows:

    Depreciation year 1: $780000 33.33% = $259974

    Depreciation year 2: $780000 44.45% = $346710

    Depreciation year 3: $780000 14.81% = $115518

    So the depreciation for year 3 = $115518

    The book value is calculated as follows:

    Book value = cost - accumulated depreciation

    BV = $780000 - $722202

    BV = $57798
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