Question

Question 1 A business equipment used for the manufacture of commercial goods $40,000. This asset is expected to be sold after 4 years for $7,000. Compute the depreciation amounts every year (depreciation schedule) during the useful life of this asset. Please refer to a current tax regulations1 for CCA rates. Please attempt using the following methods: can be purchased for First, book depreciation: [a] Straight-line (SL) method (Book Depreciation) b] Double balance (DB) method with rate 20% (Book Depreciation) [c] Double-declining-balance (DDB) method (Book Depreciation) [d] DDB switching to SL method (Book Depreciation) depreciation [e] CCA depreciation Next tax as a class 8 asset (Tax Depreciation, / year rule applies) [e] CCA depreciation rate is 50% (Tax Depreciation, 2 year rule exempt) Hint: Please do not depreciate below salvage value for methods [a], [b], and [c]. You may depreciate below salvage value for method [d] and [e] if it is necessary. Please note that the to Tax Depreciation half-year rule applies by default

Answer 1

Straight Line Depreciation = (Original Value - Salvage Value) / Useful Life

Year	Opening Book Value	Depreciation	Accumulated Depreciation	Closing Book Value
1	$ 40,000.00	$       8,250.00	$       8,250.00	$     31,750.00
2	$ 31,750.00	$       8,250.00	$     16,500.00	$     23,500.00
3	$ 23,500.00	$       8,250.00	$     24,750.00	$     15,250.00
4	$ 15,250.00	$       8,250.00	$     33,000.00	$       7,000.00

Double Declining Balance with 20% rate = Opening Book Value x 2 times 20%

Year	Opening Book Value	Depreciation	Accumulated Depreciation	Closing Book Value
1	$ 40,000.00	$     16,000.00	$     16,000.00	$     24,000.00
2	$ 24,000.00	$       9,600.00	$     25,600.00	$     14,400.00
3	$ 14,400.00	$       5,760.00	$     31,360.00	$       8,640.00
4	$   8,640.00	$       1,640.00	$     33,000.00	$       7,000.00

Double Declining Balance = Opening Book Value x 2 times Straight line depreciation rate
Straight line depreciation rate = 1/4 x 100 = 25%

Year	Opening Book Value	Depreciation	Accumulated Depreciation	Closing Book Value
1	$ 40,000.00	$     20,000.00	$     20,000.00	$     20,000.00
2	$ 20,000.00	$     10,000.00	$     30,000.00	$     10,000.00
3	$ 10,000.00	$       3,000.00	$     33,000.00	$       7,000.00
4	$   7,000.00	$                    -	$     33,000.00	$       7,000.00

DDB Switching to SL method

Year	Opening Book Value	Depreciation	Accumulated Depreciation	Closing Book Value
1	$ 40,000.00	$     20,000.00	$     20,000.00	$     20,000.00
2	$ 20,000.00	$     10,000.00	$     30,000.00	$     10,000.00
3	$ 10,000.00	$       3,000.00	$     33,000.00	$       7,000.00
4	$   7,000.00	$                    -	$     33,000.00	$       7,000.00

Since SL depreciation is lower at each year then DDB, therefore not switched to SL.