Remaining Value Over Remaining Life Example
A company acquired a $10,000 asset on March 31, 2020, and sold it on July 31, 2024. For the internal books, the taxpayer determines depreciation using the remaining value over remaining life method over a 5-year life. The amount of depreciation allowed is:
|
Year |
Depreciation Allowance |
Calculation |
|
2020 |
$1,666.67 |
$10,000 x 10 months * |
|
2021 |
2,000.00 |
$10,000 - 1,666.67 x 12 months |
|
2022 |
2,000.00 |
$10,000 - 3,666.67 x 12 months |
|
2023 |
2,000.00 |
$10,000 - 5,666.67 x 12 months |
|
2024 |
1,000.00 |
$10,000 - 7,666.67 x 6 months ** |
* A full month's depreciation is allowed for the month of March 2020.
** No depreciation is allowed for the month of July 2024.
Assume that, for the same asset, the company determined at the beginning of 2022 that the asset had a remaining life of 4 years as of the end of 2021. To make this change in the application, change the Estimated Life field to 5 years, 10 months (i.e. 4 years plus the 22 months for which the asset has already been depreciated.) When you receive the prompts due to changes being made to a critical field, answer Yes both times. In this case, you want to save the existing depreciation (calculated through 12/31/21) before you make the change.
Note the changes in the calculations below:
|
Year |
Depreciation Allowance |
Calculation |
|
2020 |
$1,666.67 |
$10,000 x 10 months |
|
2021 |
2,000.00 |
$10,000 - 1,666.67 x 12 months |
|
2022 |
1,583.33 |
[$10,000 - (1,666.67 + 2,000.00)] x 12 months |
|
2023 |
1,583.33 |
[$10,000 - (1,666.67 + 2,000.00 + 1,583.33)] x 12 months |
|
2024 |
791.67 |
($10,000 - [1,666.67 + 2,000.00 + (2 x 1,583.33)]) x 6 months |