Question - Sunrise Development Industries purchased a depreciable asset for $50 000 on 1 July 2016. The asset has a five-year useful life and a $10 000 estimated residual value. The company will use the straight-line method of depreciation for book purposes. However, Sunrise will use the reducing-balance method for tax purposes. Assume a tax rate of 30 per cent.
Required
a. Prepare depreciation schedules using the straight-line and reducing-balance methods (at 1.5 times the straight-line rate) of depreciation for the useful life of the asset.
b. Calculate the tax savings for the financial year ended 30 June 2017 from the use of the accelerated depreciation method for tax purposes.
c. Under the straight-line method of depreciation, what is the gain or loss if the equipment is sold (i) at the end of June 2019 for $30 000 or (ii) at the end June 2020 for $16 000?
d. How is the gain or loss on the disposal of the equipment presented in the financial statements assuming no revaluations?