Year and item | Cost or other basis less salaries | Useful life (years) | Depreciation allowable | ||
1954 | 1955 | 1956 | |||
1954: | |||||
Asset A | $1,600 | 4 | 1 $200 | $400 | $400 |
Asset B | 12,000 | 40 | 1 150 | 300 | 300 |
1 In this example it is assumed that the assets were placed in service on July 1, 1954.
Cost or other basis | Estimated useful life (years) | Annual depreciation |
$10,000 | 5 | $2,000 |
10,000 | 15 | 667 |
20,000 | 2,667 |
Average rate is 13.33 percent ($2,667 ÷ $20,000) unadjusted for salvage. Assuming the estimated salvage value is 10 percent of the cost or other basis, the rate adjusted for salvage will be 13.33 percent minus 10 percent of 13.33 percent (13.33%-1.33%), or 12 percent.
1954-Initial investment of $12,000.
1957-Retirement $2,000, salvage realized $200.
1958-Retirement $2,000, salvage realized $200.
1959-Retirement $4,000, salvage realized $400.
1959-Additions $10,000.
1960-Retirement $2,000, no salvage realized.
1961-Retirement $2,000, no salvage realized.
Depreciable Asset Account and Depreciation Computation on Average Balances
Year | Asset balance Jan. 1 | Current additions | Current retirements | Asset balance Dec. 31 | Average balance | Rate (percent) | Allowable depreciation |
1954 | $12,000 | $12,000 | $6,000 | 18.67 | $1,120 | ||
1955 | $12,000 | 12,000 | 12,000 | 18.67 | 2,240 | ||
1956 | 12,000 | 12,000 | 12,000 | 18.67 | 2,240 | ||
1957 | 12,000 | $2,000 | 10,000 | 11,000 | 18.67 | 2,054 | |
1958 | 10,000 | 2,000 | 8,000 | 9,000 | 18.67 | 1,680 | |
1959 | 8,000 | 10,000 | 4,000 | 14,000 | 11,000 | 18.67 | 2,054 |
1960 | 14,000 | 2,000 | 12,000 | 13,000 | 18.67 | 2,427 | |
1961 | 12,000 | 2,000 | 10,000 | 11,000 | 18.67 | 2,054 |
Corresponding Depreciation Reserve Account
Year | Depreciation reserve Jan. 1 | Depreciation allowable | Current retirements | Salvage realized | Depreciation reserve Dec. 31 |
1954 | $1,120 | $1,120 | |||
1955 | $1,120 | 2,240 | 3,360 | ||
1956 | 3,360 | 2,240 | 5,600 | ||
1957 | 5,600 | 2,054 | $2,000 | $200 | 5,854 |
1958 | 5,854 | 1,680 | 2,000 | 200 | 5,734 |
1959 | 5,734 | 2,054 | 4,000 | 400 | 4,188 |
1960 | 4,188 | 2,427 | 2,000 | 4,615 | |
1961 | 4,615 | 2,054 | 2,000 | 4,669 |
26 C.F.R. §1.167(b)-1