Question

1. In 2018, ABC Corporation purchased a new photocopier (asset class 8) with a CCA rate of 20% for $5,000, as well as a new truck (asset class 10) with a CCA rate of 30% for $40,000.

Calculate the total CCA for ABC Corporation for each of the first three years. Show your calculations.

2. ABC Corporation is a large retailer that has many stores in Canada. Each location has a store manager who receives a fixed salary regardless of the sales figures. Is agency problem likely an issue in ABC Corporation? explain.

Answer 1

				Photocopier	New Truck
			Purchased	$5000	$40000
			CCA Rate	20%	30%
1)
	1	2	3	4	5	6	7	8	9	10	11	12
Year	Class No	UCC at the	Cost of	Adj	Lesser of Cost or	UCC (2) + (3)	Additions (Col.3)	Reduced	Rate %	Prorated	Capital	UCC at
		Beginning	Addition		Proceeds from	minus (5)	minus	UCC		in number	Cost	the end
		of Year	During Year		Disposals during		Disposals (Col.5)	(6)-(7)		of days	Allowance	of year
					Year		divide by 2
Year 1	Class 8	0	$5000		0	$5000	$2500	$2500	20%		$500	$4500
	Class 10	0	$40000		0	$40000	$20000	$20000	30%		$6000	$34000
Year 2	Class 8	$4500	0		0	$4500	$4500	$4500	20%		$900	$3600
	Class 10	$34000	0		0	$34000	$34000	$34000	30%		$10200	$23800
Year 3	Class 8	$3600	0		0	$3600	$3600	$3600	20%		$720	$2880
	Class 10	$23800	0		0	$23800	$23800	$23800	30%		$7140	$16660
2)
	Store Manager is earning a Fixed Salary Amount irrespective of sales made in each store located in different location
	Which Shows Salary does not depend on sales made therefore fixed cost.In case of Higher Sales Company would benefit as salary would remain fixed
	However if sales are less in a particular location , company may incur unnecessary Fixed Expenses , so the company should do cost Revenue Analysis
	before fixing Manager Salary for every location