50.1K

Verified Solution

Link Copied!

P11.3 On June 15, 2020, a second-hand machine was purchased for $77,000. Before being put into service, the equipment was overhauled at a cost of $5,200, and additional costs of $400 for direct material and $800 for direct labour were paid in fine-tuning the controls. The machine has an estimated residual value of $5,000 at the end of its five-year useful life. The machine is expected to operate for 100,000 hours before it will be replaced and is expected to produce 1.2 million units in this time. Operating data for the next six fiscal years are provided below. The company has an October 31 fiscal year end.

Year Hours of Operation Units Produced

2020 10,000 110,000

2021 20,000 270,000

2022 20,000 264,000

2023 20,000 310,000

2024 18,000 134,000

2025 12,000 112,000

Instructions

Calculate the depreciation charges for each fiscal year under each of the following depreciation methods. Where necessary, round the depreciation rate per unit to four decimal places. Round final amounts to the nearest dollar.

1. Straight-line method. Pro-rate June 2020 and 2025 to half a month. 2. Activity method: based on output 3. Activity method: based on input 4. Double-declining-balance method. Pro-rate June 2020 to half a month. *5 An icon reads, Taxation. CCA, Class 8, 20%. The machine is eligible for the Accelerated Investment Incentive.

What is the machines carrying amount on the October 31, 2023 statement of financial position under the first four methods above? Compare your answers in part (b) with the assets tax value at the same date. An icon reads, Digging Deeper. Which method would the companys management prefer in order to minimize taxes in 2020? What happens if the actual hours of operation or units produced do not correspond to the numbers that were estimated in setting the rate?

Answer & Explanation Solved by verified expert

See Answer