Question

Blue Manufacturing purchased a machine on January 1, 2020 for use in its factory. Blue paid $458,000 for the machine and estimated that it had a useful life of 10 years, at the end of which time the machine was expected to have a residual value of $40,000. During its life, the machine was expected to produce 380,000 units. During 2020, the machine produced 41,800 units, and produced 58,600 in 2021. The machine was subject to a 20% CCA rate, and Blue’s year-end was December 31.

Calculate the annual depreciation amount for 2020 and 2021 under the straight-line method.

		2020		2021
Annual depreciation amount		$ 41800		$ 41800

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Calculate the annual depreciation amount for 2020 and 2021 under the activity method. (Round per unit value to 2 decimal places e.g. 5.75 and final answers to 0 decimal places, e.g. 5,275.)

		2020		2021
Annual depreciation amount		$ 45980		$ 64460

Calculate the annual depreciation amount for 2020 and 2021 under the double-declining balance method.

		2020		2021
Annual depreciation amount		$ ???		$ ???

eTextbook and Media

Calculate the annual depreciation amount for 2020 and 2021 under the capital cost allowance method.

		2020		2021
Annual depreciation amount		$ ???		$ ???

I can't get my calculations to work out for the last 2?

Answer 1

Machine Value = $458000

Salvage Value = $40000

Depreciaible Value = MV-SV = $418000

Useful Life of the Asset = 10 Years

1- Under SLM method Depreciable value will be divided equally into 10 years resulting into each year's depreciation:

=418000/10 = $41800 per Year

Year	2020	2021
Depreciation	$41800	$41800

2- Activity Method : Depreciable value will be divided into total production capacity and then will be multiplied by no. of units produced in a year resulting into each year's depreciation:

=418000/380000 = $1.1 per unit

Year	2020	2021
Depreciation/unit (A)	$1.1	$1.1
No. of units produced (B)	41800	58600
DEPRECIATION	$45980	$64460

3- Calculation of Depreciation under DDM:

Step 1- Determine Initial Cost (Given)

Step 2 - Determine Salvage Value (Given)

Step 3 - Useful Life (10 Years)

Step 4 - Depreciation rate = 1/useful life = 1/10 = 10%

Step 5 - Now Double the rate = 20%

Now Follow the following method for calculation of depreciation =

For the last year of asset we do not compute depreciation as per the rate of depreciation but we calculate the balancing figure of opening value at the year end ($56103) and Salvage Value ($40000) and charge it as depreciation it may be more than the actual depreciation and can be less too.

4- Capital Cost Allowance Method :

What is Capital Cost?

Capital cost is the total price paid for a property, which includes:

• the purchase cost
• any fees associated with buying the property, including legal, accounting, inspection, architectural, etc.
• the cost of any upgrades or improvements to the property that have not already been claimed as expenses

How Is Capital Cost Allowance Calculated?

CCA is calculated on a declining basis based on the assigned rate and the undepreciated cost of the asset in that year.

CCA = 20%

CCA will be calculated in subsequent years until the machine depreciates to zero or is disposed of.