Question

Athabasca Ag is purchasing 1,000 grain bins at a cost of $40,000 each. Each bin also has a $5,000 delivery and installation cost, and the bins have a capital cost allowance (CCA) rate of 25%. What will be the CCA deduction for year 1? OA. $5,000,000 O B. $11,250,000 C. $5,625,000 OD, $7,750,000 O E. $10,000,000

Answer 1

Delivery cost is added to the cost of the product to get the CCA charge. Thus, total cost is as follows: Total capital cost =( Puchasing cost+Delivery and installation cost) Number of units =($40,000+$5,000) x1,000 =$45.000 x1,000 =$45,000,000 Thus, total cost is $45,000,000. CCA deduction for year 1 is calculated as follows: Deduction = CCA%x Total cost =25% $45,000,000 =$11.250.000 Thus, the total deduction for year 1 is $11,250,000. Therefore, the correct answer is option B.