Reference no: EM132581183
On June 15, 2014, 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. Depreciation expense should be calculated to the nearest half month.
Year Hours of Operation Units Produced
2014 10,000 110,000
2015 20,000 270,000
2016 20,000 264,000
2017 20,000 310,000
2018 18,000 134,000
2019 12,000 112,000
Instructions
Question (a) Calculate the depreciation charges for each fiscal year under each of the following depreciation methods. Where necessary, round depreciation rate per unit to four decimal places.
1.Straight-line method
2.Activity method: based on output
3.Activity method: based on input
4.Double-declining-balance method
5. CCA, Class 8, 20%
Question (b) What is the carrying amount of the machine on the October 31, 2017 statement of financial position under the first four methods above?
Question (c) Compare your answers in (b) with the asset's tax value at the same date.
Question (d) Which method would the company's management prefer in order to minimize taxes in 2014?
Question (e) What happens if the actual hours of operation or units produced do not correspond to the numbers that were estimated in setting the rate?