1. Finances Accounting plays an important role in any business. Why do you think it is important for a business to keep track of its expenses?

2. Lesson Objective Use the modified accelerated cost recovery system to compute the annual depreciation and book value. Content Vocabulary modified accelerated cost recovery system (MACRS) A method of computing depreciation by which assets can be depreciated fully over recovery periods of 4, 6, 8, 11, 16, or 21 years, according to fixed percents.

4. Prince Pizza purchased a new delivery van for $20,000. MACRS allows delivery vans to be depreciated fully in 6 years according to six fixed percents: 20 percent the first year, 32 percent the second year, 19.2 percent the third year, 11.52 percent the fourth and fifth years, and 5.76 percent the sixth year. What is the annual depreciation? Example 1

5. Step: Find the annual depreciation. Example 1 Answer

6. Find the book value for the van in Example 1. Example 2

7. Determine the annual depreciation. It is the same as that determined for Example 1. Example 2 Answer: Step 1

8. Determine the accumulated depreciation. For year 1 it is $0 + $4,000 = $4,000 For year 2 it is $4,000 + $6,400 = $10,400 Same process for remaining years. Example 2 Answer: Step 2

9. Determine the book value. For year 1 it is $20,000 – $4,000 = $16,000 For year 2 it is $20,000 – $10,400 = $9,600 Same process for remaining years. Example 2 Answer: Step 3

10. Example 2 Answer: Step 3 (cont.)

11. Blake’s Nursery purchased a truck for $40,000. The truck is fully depreciated in 6 years. Fixed percents are: 32 percent, 20 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent. What is the depreciation and book value for each year? Practice 1

12. YearDepreciationBook Value 1 $12,800 $ 27,200 2 8,000 19,200 3 7,680 11,520 4 4,608 6,912 5 4,608 2,304 6 2,304 0 Practice 1 Answer

13. Time Mate purchased machinery for $126,000. The machinery is fully depreciated in 5 years. Fixed percents are: 43 percent, 21.6 percent, 12.5 percent, 12 percent, and 10.9 percent. What is the depreciation and book value for each year? Practice 2

14. YearDepreciationBook Value 1$54,180 $71,820 2 27,216 44,604 3 15,750 28,854 4 15,120 13,734 5 13,734 0 Practice 2 Answer