On July 2, 2017, Vicuna Inc. purchased equipment for $720,000. This equipment has an estimated useful life of six years and an estimated residual value of $30,000. Depreciation is taken for the portion of the year the asset is used. The asset is a Class 8 asset with a maximum CCA rate of 20%. Vicuna has a December year end.
Instructions
a) Complete the form below by determining the depreciation expense/CCA and year-end book values/UCC for 2017 and 2018 using the
1. double declining-balance method.
2. capital cost allowance method (using maximum rate).
Double Declining-Balance Method 2017 2018
Depreciation expense for year 2017, 2018
Accumulated depreciation 2017,2018
Year-end book value 2017,2018
Capital Cost Allowance Method 2017 2018
CCA for year 2017,2018
End of year UCC 2017,2018
Total CCA claimed 2017,2018
b) Instead, assume Vicuna had used straight-line depreciation during 2017 and 2018. During 2019, the company determined that the equipment would be useful to the company for only one more year beyond 2019. Residual value is estimated at $40,000. Calculate the amount of depreciation expense for the 2019 income statement.
a)
| Double Declining-Balance Method | 2017 | 2018 |
| Depreciation expense for year | $ 120,000.00 | $ 200,000.00 |
| Accumulated depreciation, end of year | $ 120,000.00 | $ 320,000.00 |
| Year-end book value | $ 600,000.00 | $ 400,000.00 |
| Capital Cost Allowance Method | 2017 | 2018 |
| CCA for year | $ 72,000.00 | $ 129,600.00 |
| End of year UCC | $ 648,000.00 | $ 518,400.00 |
| Total CCA claimed | $ 72,000.00 | $ 201,600.00 |
b)
| Cost | $ 720,000.00 |
| Depreciation | $ (172,500.00) |
| Residual | $ (40,000.00) |
| 2019 depreciation | $ 507,500.00 |
| multiply by | 1/2 |
| $ 253,750.00 |
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