How do I calculate a machines depreciable basis?
A machine costs $10,000 plus sales taxes of 5%. Freight is $200. The company incurs $1,000 related to installation and testing. Financing (interest expense) will cost $600.
What is the calculated depreciable basis and how is it done?
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The cost of equipment, vehicles, and furniture includes the purchase price, sales taxes, transportation fees, insurance paid to cover the item during shipment, assembly, installation, and all other costs associated with making the item ready for use. Since the machine is bought and not constructed, you cannot include the interest expense in its cost. Interest goes to the income statement as a period cost.
Assuming there's no salvage or residual value, the depreciable base is:
Purchase price $10,000
Sales tax $500
Freight $200
Installation/testing $1,000
Total $11,700
See IRS Publication 946 for depreciation.
http://www.irs.gov/pub/irs-pdf/p946.pdf