QUESTION NO 1:
Jack and Jill who own a business called Bed and breakfast in a partnership. During their financial year they bought some of the assets for their bed and breakfast business, on the other hand they bought one more asset for their investment property which is own by both in partnership as well. Below are the assets they bought for their bed and breakfast business and the cost (depreciation) they can claim on their taxable income of the year. There are two methods that they can choose to calculate the effective-life depreciation of an asset. The prime cost methods undertake the value of the depreciating assets decreases constantly over it life. At the same time diminishing value method infer that the value of depreciating asset …show more content…
In the case of printer, jack and Jill can claim $233 during the expected life of the printer.
DIMINISHING COST METHOD:
To calculate through diminishing cost method:
Base Value Days held/365 200%/ asset’s effective life Depreciation In percentage
700 (61/365) (200%/3) 78 66.67%
622 (365/365) (200%/3) 415 66.67%
207 (365/365) (200%/3) 138 66.67%
69 (365/365) (200%/3) 46 66.67%
23 (365/365) (200%/3) 15 …show more content…
They can claim $415 in the second year, $138 in the third year and so on, till the value came down to zero of the printer.
PURCHASED AIR-CONDITIONER:
Purchase Value: $2000
Expected Life: 8 Years
Date Of purchase: 15-MAR-2015
PRIME COST METHOD:
According to the prime cost method the depreciation of the air conditioner during it’s effective life is calculated below:
Prime cost Method: Prime cost method= $2000*(365/365)*(100%/8)
Prime cost method = $250.
In the case of the air conditioner, as the expected life of the asset is eight years, so Jack and Jill can claim $250 over the life of the asset. In other words they can claim 12.5% each year during the expected life of the asset.
DIMINISHING VALUE METHOD:
Calculating the Depreciation value of the air conditioner with the diminishing value method is as follow:
Base Value Days held/365 200%/ asset’s effective life Depreciation In percentage
2000 (365/365) (200%/8) 148 25%
1852 (365/365) (200%/8) 463 25%
1388 (365/365) (200%/8) 347 25%
1042 (365/365) (200%/8) 260 25%
781 (365/365) (200%/8) 195 25%
586 (365/365) (200%/8) 147 25%
440 (365/365) (200%/8) 110 25%
330 (365/365) (200%/8) 82
Jack and Jill who own a business called Bed and breakfast in a partnership. During their financial year they bought some of the assets for their bed and breakfast business, on the other hand they bought one more asset for their investment property which is own by both in partnership as well. Below are the assets they bought for their bed and breakfast business and the cost (depreciation) they can claim on their taxable income of the year. There are two methods that they can choose to calculate the effective-life depreciation of an asset. The prime cost methods undertake the value of the depreciating assets decreases constantly over it life. At the same time diminishing value method infer that the value of depreciating asset …show more content…
In the case of printer, jack and Jill can claim $233 during the expected life of the printer.
DIMINISHING COST METHOD:
To calculate through diminishing cost method:
Base Value Days held/365 200%/ asset’s effective life Depreciation In percentage
700 (61/365) (200%/3) 78 66.67%
622 (365/365) (200%/3) 415 66.67%
207 (365/365) (200%/3) 138 66.67%
69 (365/365) (200%/3) 46 66.67%
23 (365/365) (200%/3) 15 …show more content…
They can claim $415 in the second year, $138 in the third year and so on, till the value came down to zero of the printer.
PURCHASED AIR-CONDITIONER:
Purchase Value: $2000
Expected Life: 8 Years
Date Of purchase: 15-MAR-2015
PRIME COST METHOD:
According to the prime cost method the depreciation of the air conditioner during it’s effective life is calculated below:
Prime cost Method: Prime cost method= $2000*(365/365)*(100%/8)
Prime cost method = $250.
In the case of the air conditioner, as the expected life of the asset is eight years, so Jack and Jill can claim $250 over the life of the asset. In other words they can claim 12.5% each year during the expected life of the asset.
DIMINISHING VALUE METHOD:
Calculating the Depreciation value of the air conditioner with the diminishing value method is as follow:
Base Value Days held/365 200%/ asset’s effective life Depreciation In percentage
2000 (365/365) (200%/8) 148 25%
1852 (365/365) (200%/8) 463 25%
1388 (365/365) (200%/8) 347 25%
1042 (365/365) (200%/8) 260 25%
781 (365/365) (200%/8) 195 25%
586 (365/365) (200%/8) 147 25%
440 (365/365) (200%/8) 110 25%
330 (365/365) (200%/8) 82