Asked by Jeremiah Antoine on Jul 07, 2024
Verified
Equipment purchased on the last day of a company's fiscal year for a total cost of $10,000 is in a capital asset class that has a 10% per annual depreciation rate allowed for tax purposes. In the year of acquisition of this asset, the allowable tax deduction will be:
A) $10,000.
B) $1,000.
C) $0.
D) $500.
Fiscal Year
A one-year period used for financial reporting and budgeting by companies and governments, which may not align with the calendar year.
Depreciation Rate
The percentage at which an asset is depreciated each period, often used to allocate the cost of an asset over its useful life.
Tax Deduction
A reduction in taxable income, which can lower the total tax bill, allowed for certain expenses or investments.
- Get to know the basics of capital budgeting and the several approaches utilized in the analysis of investment projects.
- Gain insight into the effect of tax considerations on the cash flows derived from investments in capital.
Verified Answer
SE
Sriram EthakotaJul 13, 2024
Final Answer :
D
Explanation :
Since the equipment is purchased on the last day of the fiscal year, the company can only claim half-year depreciation in the year of acquisition. With a 10% annual depreciation rate on a $10,000 asset, the full year's depreciation would be $1,000. Therefore, for half a year, it's $1,000 * 0.5 = $500.
Learning Objectives
- Get to know the basics of capital budgeting and the several approaches utilized in the analysis of investment projects.
- Gain insight into the effect of tax considerations on the cash flows derived from investments in capital.