Question

Fast eddie's cyclery bought a $500,000 machine to assemble bicycles on july 1, 2015. what is his depreciation expense for 2015, assuming there is no section 179 election and they elect out of bonus depreciation?

Answer 1

In a business, the useful life of a machinery depends on its usage.

Let us assume that the useful life of the machine is 5 years.

cost of 500,000 ; useful life - 5 years ; further assume that there is no salvage value and no section 179 election and no out of bonus depreciation. 

We will use the straight line method of depreciation. It is dividing the cost by its useful life.

500,000 / 5 years = 100,000 depreciation expense per year.

Since he only bought it on July 1, it can only be depreciated for 6 months.

100,000 * 6/12 = 50,000 depreciation expense for year  2015.