engineering economic

1. REMAINING TOPICS OF CHAPTER 8
& CHAPTER-9: DEMAND ANALYSIS
AND SALES FORECASTING

2. Agenda
• Depreciation Rates of Building, Equipment, Furniture
• Recaptured Depreciation
• Taxes on Capital Gains
• Depreciation Numerical
• Demand Analysis
• Correlation of Price and Consumption Rate
• Market Research
• Sales Forecasting
• Criteria for Desirable Sales Forecasting Procedures
• Factors Affecting Accuracy of Forecasting

3. Depreciation Rates
• As per Schedule-2 of Income Tax Act, 2058, the depreciable
property is categorized as follows

4. Depreciation Rates…
A person has to compute the depreciation deduction of the properties of the class in
his income year by using the following formula:
A x B
"A" means the depreciation base amount in the class of the property at the end of
that income year.
"B" means the rate of depreciation deduction mentioned in Section 3 of this
Schedule, applicable to that class.

5. Recaptured Depreciation
• Purchase Price of an Equipment= $10,000
• Life for Tax purpose= 5 Years
• Straight Line Method Depreciation amount per
year= $ 2,000
• At the end of 4 Years= 10,000-8,000= 2,000
Adjusted Cost Basis
• Old & Outdated, Selling Rate= 3,000
• Gain= 3,000-2,000= 1,000 (Recaptured
Depreciation) :- Ordinary Income

6. Recaptured Depreciation…
• Purchase Price of an Equipment= $10,000
• Life for Tax purpose= 5 Years
• Straight Line Method Depreciation amount per year= $
2,000
• At the end of 4 Years= 10,000-8,000= 2,000 Adjusted
Cost Basis
• Old & Outdated, Selling Rate= 12,000
• Gain= 12,000-2,000= 10,000 (Recaptured Depreciation)
:- 8,000 Ordinary Income and 2000 Capital Gain
[Smaller of Gain and Accumulated Depreciation]

7. Explanation
• Depreciation recapture is the gain realized by
the sale of depreciable capital property that
must be reported as ordinary income for tax
purposes. Depreciation recapture is assessed
when the sale price of an asset exceeds the
tax basis or adjusted cost basis. The difference
between these figures is thus "recaptured" by
reporting it as ordinary income.

8. Explanation
• The realized gain from an asset sale must be
compared with the accumulated depreciation.
The smaller of the two figures is considered to be
the depreciation recapture. In our example
above, since the realized gain on the sale of the
equipment is $1,000, and accumulated
depreciation taken through year four is $8,000,
the depreciation recapture is thus $1,000. This
recaptured amount will be treated as ordinary
income when taxes are filed for the year.

9. Explanation
• Instead, assume the equipment in the
example above was sold for $12,000. In that
case, the entire accumulated depreciation of
$8,000 is treated as ordinary income for
depreciation recapture purposes. The
additional $2,000 is treated as a capital gain,
and it is taxed at the favorable capital gains
rate. There is no depreciation to recapture if a
loss was realized on the sale of a depreciated
asset

10. Capital Gain
• Capital gains are the profits that an investor realizes when he
or she sells the capital asset for a price that is higher than the
purchase price.
• Capital gains taxes are only triggered when an asset is
realized, not while it is held by an investor.
• An investor can own shares that appreciate every year, but
the investor does not incur a capital gains tax on the shares
until they are sold.
• A capital gain is the difference between the purchase price
(the basis) and the sale price of an asset. The formula for
capital gain is: Sale Price - Purchase Price = Capital Gain
• Note that this formula assumes the sale price is higher than
the purchase price. If an investor sells an asset for less than he
or she paid, this is called a capital loss, and no tax is owed.

12. Numerical
• Mr. Ram had 500 ordinary shares of Rs 100
par value of Nabil Bank Ltd listed in the stock
exchange. He had requested stock broker to
sell those shares. Mr. Ram had purchased
those shares at Rs 1,000 each and paid broker
commission Rs 4,000. Stock broker sold those
shares at Rs 7,000 each and received
commission of Rs 17,500.

13. Numerical
• Nepal Bank Ltd sold 200,000 no. of shares
held in Gramin Bikash Bank Ltd to ABC
company ltd @ Rs 114 each that is not listed
in Nepal stock exchange. In this situation,
calculate the advance tax while making
payment to Nepal Bank Ltd:

14. Numerical
• Mr. Shyam had purchased a house for Rs forty
lakhs on 2068/7/10. He sold the same house
on 2070/8/10 for Rs sixty lakhs. Calculate the
capital gain tax