Could someone pls answer this depreciation question? A digitally controlled lath

Question

Could someone pls answer this depreciation question?

A digitally controlled lathe was purchased by a small machining company for 545,000.00 in early January 2013. It is expected that the lathe will last 9 years and then be worth dollar 6000.00 in the used equipment market. The company accountant has decided to use a Sum of the Year's Digits method for internal depreciation; and the government is going to specify that the Capital Cost Allowance for the lathe is 25 Percentage. The fiscal year is the calendar year. The corporate tax rate is 35 Percentage. What is the internal depreciation charge (expense) that will be made next year (2014) What is the Capital Cost allowance that will be made on the tax return in 2015 What will the internal book value of the lathe be at the end of 2016 What will be the Undepreciated Capital Cost of the lathe at the end of 2017 If the machine is sold for Dollar 10,000 on June 30 2017, identify all relevant internal T- accounts for the transaction.

Explanation / Answer

a)

Sum of year = (n*(n+1))/2

Sum of year = (9*(9+1))/2

Sum of year = 45

Depreciation Rate = (Cost-Salvage Value)/Sum of year

Depreciation Rate = (45000-6000)/45

Depreciation Rate = $ 866.667

Depreciation in year 2013 = 866.667*9 = 7800

Depreciation in year 2014 = 866.667*8 = 6933.33

b)

Undepreciated capital cost at the beginning of 2015 = Cost*(1-depreciation rate)^n

Undepreciated capital cost at the beginning of 2015 = 45000*(1-25%)^2

Undepreciated capital cost at the beginning of 2015 = 25,312.50

Capital cost Allownce in 2015 = Undepreciated capital cost at the beginning of 2015 * Depreciation Rate

Capital cost Allownce in 2015 = 25312.50*25%

Capital cost Allownce in 2015 = $ 6328.125

c)

Depreciation in year 2013 = 866.667*9 = 7800

Depreciation in year 2014 = 866.667*8 = 6933.33

Depreciation in year 2015 = 866.667*7 = 6066.67

Depreciation in year 2016 = 866.667*6 = 5200

Accumulated Depreciation till 2016 = 7800 + 6933.33+6066.67 + 5200

Accumulated Depreciation till 2016 = 26000

Internal Book Value of Lathe at the end of 2016 = Cost - Accumulated Depreciation till 2016

Internal Book Value of Lathe at the end of 2016 = 45000-26000

Internal Book Value of Lathe at the end of 2016 = 19000

d)

Undepreciated capital cost at the end of 2017 = Cost*(1-depreciation rate)^n

Undepreciated capital cost at the end of 2017 = 45000*(1-25%)^5

Undepreciated capital cost at the end of 2017 = 10678.71

e)

Sale Value = 10000

Identification of Relevant Internal T- Account would be :

Depreciation Account

Accumulated Depreciation Account

Machine Account

Gain or Loss on Machine sold

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