Using the Depreciation Table:

For this problem, consider the purchase of a $100,000 barge, a 10 year asset, for a lumber recovery business.

1) How much depreciation will you take in the 9th year you own the asset?

A) $6,560

B) $93,440

C) $10,000

D) None of the above

**Answer:** This is a class 10 asset, with a cost basis of $100,000. To get the depreciation, we use the Cost Basis times the number in the table indicating the appropriate year. We would use $100,000(.0656) to get $6,560, which is A.

2) What is the book value of the barge after you have owned it for 9 years?

A) $90,170

B) $10,000

C) $9,830

D) None of the above

**Answer:** To find the book value, we use the equation Book Value = Cost Basis - Depreciation.

Year | Depreciation | Book Value |
---|---|---|

1 | $10,000 | $90,000 |

2 | $18,000 | $72,000 |

3 | $14,400 | $57,600 |

4 | $11,520 | $46,080 |

5 | $9,220 | $36,860 |

6 | $7,370 | $29,490 |

7 | $6,550 | $22,940 |

8 | $6,550 | $16,390 |

9 | $6,560 | $9,830 |

Subtracting the depreciation from our cost basis of $100,000, we get our book value. In the 9th year, the book value of the barge is at $9,830, which is answer C.

3) What is the book value of the barge when you sell it in the 9th year?

A) $90,170

B) $13, 110

C) $15,000

D) None of the above

**Answer:** We can see in our previous table that the depreciation from year 8 to year 9 is $6,560. Since we are selling the asset in year 9, we would use a half-yearly convention, where we cut the depreciation in half. $6,560/2 = $3,280. Adding this to our book value of $9,830, we get a new book value of $13,110, which is answer B.