EXAMPLE $7-7$

Comparison of Depreciation Methods The La Salle Bus Company has decided to purchase a new bus for $$85,000$ with a trade$-$in of their old bus. The old bus has a BV of $$10,000$ at the time of the trade$-$in$.$ The new bus will be kept for $10$ years before being sold. Its estimated SV at that time is expected to be $$5,000.$ First, we must calculate the cost basis. The basis is the original purchase price of the bus plus the BV of the old bus that was traded in $[$Equation $(7-11)].$ Thus, the basis is $$85,000+$ $$10,000,$ or $$95,000.$ Table $7-2$ indicates that buses, are asset class $00\mathrm{.}23.$ Hence, we find that buses have a nine$-$year class recovery period, over which we depreciate the bus with historical methods discussed in Section $7\mathrm{.}3,$ and a five$-$year GDS class life.

Find the solution using each method:

SL Method

DB Method

DB with Switchover to SL Depreciation

MACRS $($GDS$)$ with Half$-$Year Convention