A manufacturing company has purchased four assets: For book depreciation, the un
ID: 1251832 • Letter: A
Question
A manufacturing company has purchased four assets: For book depreciation, the units-of-production (UP) method was used for the truck. Usage of the truck was 22.000 kilometres and 25.000 kilometres during the first two years, respectively. Calculate the book depreciation for each asset in the first two years. Calculate the capital cost allowance for each asset in the first two years. If the lathe is to be depreciated over the early portion of its life using DDB and then by switching to SL for the remainder of the asset's life, when should the switch occur?Explanation / Answer
a. Lathe: Rate 1/12*2 = .16667
First year: 45,000*.16667 = 7500.15
Second year: (45,000 - 7500.15)*.16667 = 6250.10
Truck: First year: (25,000)*(22,000/200,000) = 2750
Second year: (25,000)*(25,000/200,000) = 3125
Building: FIrst year: (800,000 - 100,000)/50 = 14,000
second year: same as first year: 14,000
Photocopier: 1+2+3+4+5 = 15
First year: 40,000*5/15 = 13,333.33
Second year: 40,000*4/15 = 10,666.67
b. Lathe: Class 43, 30%
First year: 45,000*30%*.5 = 6750
Second year: (45,000-6750)*.3 = 11475
Truck: Class 10, 30%.
First year: 25,000*.3*.5 = 3750
second year: (25,000-3750)*.3 = 6375
Building: Class 1, 4%
First year: 800,000*.04*.5 = 16,000
Second year: (800,000-16,000)*.04 = 31360
Photocopier: Class 8, 20%
First year: 40,000*.2*.5 = 4000
second year: (40,000-4,000)*.2 =14400
c. The switch should occur when SL is more than DDB, which occurs in the 9th year according to the following depreciation schedule:
Beginning BV
DDB dpr
SL dpr
Dpr expense
End BV
45,000
7500.15
3500
7500.15
37499.85
37499.85
6250.10
3136.35
6250.10
31249.75
31249.75
5208.39
2824.98
5208.39
26041.36
26041.36
4340.31
2560.15
4340.31
21701.05
21701.05
3616.91
2337.63
3616.91
18084.14
18084.14
3014.08
2154.88
3014.08
15070.06
15070.06
2511.73
2011.68
2511.73
12558.33
12558.33
2093.10
1911.67
2093.10
10465.23
10465.23
1744.24
1866.31
1866.31
8598.92
Beginning BV
DDB dpr
SL dpr
Dpr expense
End BV
45,000
7500.15
3500
7500.15
37499.85
37499.85
6250.10
3136.35
6250.10
31249.75
31249.75
5208.39
2824.98
5208.39
26041.36
26041.36
4340.31
2560.15
4340.31
21701.05
21701.05
3616.91
2337.63
3616.91
18084.14
18084.14
3014.08
2154.88
3014.08
15070.06
15070.06
2511.73
2011.68
2511.73
12558.33
12558.33
2093.10
1911.67
2093.10
10465.23
10465.23
1744.24
1866.31
1866.31
8598.92
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