Blackwater Spring and Metal utilizes the same computerized spring forming machinery in its U.S. and Malaysian plants. The first cost was $750,000 with S = $150,000 after n = 10 years. MACRS depreciation with n = 5 years is applied in the United States and standard SL depreciation with n = 10 years is used by the Malaysian facility. (a) If the equipment is sold after 6 years for $100,000, calculate the over- or under-depreciation amounts for each method. (b) Use a spreadsheet to plot the book values for both methods on a single graph.

Question

What will be an ideal response?

Answer 1

(a) MACRS in United States: n = 5, BV6 = $0



Over-depreciated by $100,000



Selling price – BV6 = 100,000 – 0 = $100,000



SL in Malaysia: n = 10



D = (750,000 – 150,000)/10 = $60,000 per year



BV6 = 750,000 – 6(60,000) = $390,000



Under-depreciated by $290,000

Selling price – BV6 = 100,000 – 390,000 = $-290,000