To calculate MACRS table depreciation

Modified Accelerated Cost Recovery System (MACRS) table depreciation uses the rate tables in LN to determine the yearly depreciation percentages for each year in an asset's life. In the first year, the yearly percentage is applied and the result is then divided across each period from the beginning of the recovery period to the end of the year. In subsequent years, the result is divided across each period in the year to come up with the appropriate depreciation expenses. There are two variations of MACRS table depreciation:

MACRS Table Daily

In the MACRS Table Daily formula, the yearly depreciation amount determined using a percentage from the LN rate tables is divided across the periods in the year using the following formulas:

yearly depreciation = yearly depreciation percentage * cost 

depreciation for each period = 
yearly depreciation amount * (days in period / days in tax year)
Example of MACRS Table Daily
  • Year One

Your company uses a conveyor with a cost of $10,000, a life of five years, and a in-service date of 1/1/2002. Management decides to depreciate it under the MACRS 200% declining balance method with a half year averaging convention. LN uses the rate tables to determine the percentage used in calculating the annual percentage in each year.

In the first year, the rate is 20% and LN calculates depreciation as follows:

(20% * $10,000) = $2,000

LN then calculates the depreciation expense for each period in that year according to how many days were in each period. In the first period of the asset's life there were only 25 days, so LN performs the following calculation for that period:

 $2,000 * (25 / 365) = $136.99

In the second period of the first year, there were 31 days. LN calculates depreciation as follows:

$2,000 * ( 31/365) = $169.86

LN records a depreciation expense of $136.99 in the first period of year one, and an expense of $169.86 in the second period. If an asset is placed in service at any time other than the first day of the tax year, LN substitutes the number of days from the in-service date to the end of the tax year for the number 365 in the calculations listed above.

For example, if the asset were placed in service on November 6, 2002, LN calculates that there were only 56 days in the first tax year. LN would use 25/56 in the first calculation and 31/56 in the second calculation.

  • Year Two

For the second year, LN uses the rate tables to determine that the rate for this year should be 32%. LN calculates the yearly depreciation expense as follows:

(32% * $10,000) = $3,200

The first period in year two has 31 days, so LN calculates depreciation for the period as follows:

$3,200 * (31 / 365) = $271.78
MACRS Table Periodic

In MACRS Table Periodic formula, the yearly depreciation amount determined from the LN rate tables is divided evenly across each period in the year, using the following formulas:

yearly depreciation = yearly depreciation percentage * cost 

depreciation for each period = yearly depreciation amount / periods in year
Example of MACRS Table Periodic
  • Year One

Your company uses a conveyor with a cost of $10,000, a life of five years, and a in-service date of January 1, 2001. Management decides to depreciate it under the MACRS 200% declining balance method with a half year averaging convention. LN uses the rate tables to determine the percentage used in calculating the annual percentage in each year.

In the first year, the rate is 20% and LN calculates depreciation as follows:

(20% * $10,000) = $2,000

LN then calculates the depreciation expense for each period in the year, without regard to the number of days in each period. For each period in the first year, LN performs the following calculation:

$2,000 / 12 = $166.67

LN divides this amount evenly from the in-service date to the end of the first fiscal year.

  • Year Two

For the second year, LN uses the rate tables to determine that the rate for this year should be 32%. It calculates the yearly depreciation expense as follows:

(32% * $10,000) = $3,200

For each period in the second year, LN performs the following calculation:

 $3,200 / 12 = $266.67

LN records a depreciation expense of $266.67 in each period of year two.