Problem 4 On October 1, you purchased a residential home in which to locate your

Question

Problem 4 On October 1, you purchased a residential home in which to locate your professionall office for $450,000. The appraisal is divided into $30,000 for the land and the rest for the building (Check Table 8.1 posted at eclass to find the rresponding CCA rates ) (a) In your first year of ownership, how much CCA can you deduct? (Assume that ENG M 310A1 Engineering Economy (Fall 2017) (b) Suppose that the property was sold at $187,000 at the end of the fourth year of ownership. What is the undepreciated capital cost of the building? TABLE 8.I Capital Cost Allowance Rates and Classes Man 1 tea 17 55%

Explanation / Answer

(a )Answer:

Total value of residential house: $450000/-out of which,

Value of Non depreciable asset( Land) : $30,000

Value of depreciable asset (Building): $420000

Since, Building is used for non residential purpose, it falls under Class 1( 4%). {ASSUMED Building acquired after 1987.}

Since Building is user for non residential purpose, by further assuming that non residential house acquired after March 18, 2007, additional allowance of 6% is claimed.

So total of 10% (4+6) can be claimed as CCA.

Therefore, total CCA that can be deducted in the 1St year of ownership will be [$210000(half of $420000)×10%=$21000/-

(b) answer:

Computation of Undepreciated value of asset at the end of 4th year:

Therefore, Undepreciated value of Building is $290,871/-

Year Opening Value( In $) CCA(10%) CLOSING BALANCE( in $) 1 420000 21,000( half only) 399000 2 399000 39,900 359100 3 359100 35,910 323190 4 323190 32319 290871

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