Question

Question 3 (30 points) Your company purchased new equipment on the dates and for the costs specified as follows: Purchase Price Salvage Value $15,000 $10,000 $15,000 01 May 2010 01 Nov 2011 01 Jan 2012 $45,000 $25,000 $35,000 (a) Using straight line depreciation with 10 year depreciable lifetimes, calculate the total book value of your equipment at the end of 2012. (15 points) (b) Using a CCA rate of 30%, calculate the undepreciated capital cost of your equipment at the end of 2012. (15 points)

Please answer question with detailed explanation so i can understand

Answer 1

(a)

Annual depreciation = (Cost price - Salvage value)/Useful life

Annual depreciation on equipment 1 = (45,000 - 15,000)/10

= $3,000

Annual depreciation on equipment 2 = (25,000 - 10,000)/10

= $1,500

Annual depreciation on equipment 3 = (35,000 - 15,000)/10

= $2,000

Calculation of book value of equipment 1 as on December 31, 2012

Cost price	45,000
Depreciation expense 2010 (3,000 x 8/12)	- 2,000
Depreciation expense 2011	- 3,000
Depreciation expense 2012	- 3,000
Book value of equipment 1 as on December 31, 2012	$37,000

Calculation of book value of equipment 2 as on December 31, 2012

Cost price	25,000
Depreciation expense 2011 (1,500 x 2/12)	- 250
Depreciation expense 2012	- 1,500
Book value of equipment 1 as on December 31, 2012	$23,250

Calculation of book value of equipment 3 as on December 31, 2012

Cost price	35,000
Depreciation expense 2012	- 2,000
Book value of equipment 1 as on December 31, 2012	$33,000

Total book value of the equipment as on December 31, 2012 = 37,000 + 23,250 + 33,000

= $93,250

(b)

Calculation of undepreciated cost of equipment 1 as on December 31, 2012

Cost price	45,000
CCA 2010 (45,000 X 30/100 X 8/12)	- 9,000
CCA 2011 (45,000 - 9,000) x 30/100	- 10,800
CCA 2012 (45,000 - 9,000 - 10,800) x 30/100	- 7,560
Undepreciated cost of equipment 1 as on December 31, 2012	$17,640

Calculation of undepreciated cost of equipment 2 as on December 31, 2012

Cost price	25,000
CCA 2011 (25,000 X 30/100 X 2/12)	- 1,250
CCA 2012 (25,000 - 1,250) X 30%	- 7,125
Undepreciated cost of equipment 2 as on December 31, 2012	16,625

Calculation of undepreciated cost of equipment 3 as on December 31, 2012

Cost price	35,000
CCA 2012 (35,000 X 30/100)	- 10,500
Undepreciated cost of equipment 3 as on December 31, 2012	$24,500

Undepreciated cost of total equipment as on December 31, 2012 = 17,640 + 16,625 + 24,500

= $58,765

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