Waterway Manufacturing purchased a machine on January 1, 2017 for use in its fac

Question

Waterway Manufacturing purchased a machine on January 1, 2017 for use in its factory. Waterway paid $130,000 for the machine and estimated that it had a useful life of 4 years, at the end of which time the machine was expected to have a residual value of $20,000. During its life, the machine was expected to produce 220,000 units. During 2017, the machine produced 22,100 units, and produced 33,100 in 2018. The machine was subject to a 20% CCA rate, and Waterway’s year-end was December 31.

a) Calculate the annual depreciation amount for 2017 and 2018 under the straight-line method.

b) Calculate the annual depreciation amount for 2017 and 2018 under the activity method.

c) Calculate the annual depreciation amount for 2017 and 2018 under the double-declining balance method.

d) Calculate the annual depreciation amount for 2017 and 2018 under the capital cost allowance method.

Explanation / Answer

A.) Straight line Method Year 2017 Depreciation Expense: $27,500 Year 2018 Depreciation Expense: $27,500 Formula = Purchase value of Asset - Salvage of Asset / Life of Asset = ($ 130,000-20,000)/4 =$ 27,500 B.) Activity Method Year Depreciable Units Depreciation per unit Depreciation Expense 2017 22100 0.50 11050 2018 33100 0.50 16550 Depreciable Base = Asset Cost - Salvage Value.                     = $ 130,000 - $20,000 = $110,000 Depreciation per unit = Depreciable Base / Total estimated units of Production           =$ 110,000/ 220,000 Units = $ 0.5 per unit Depreciation for Period = Depreciation per unit x Number of units in a Period. C.) Double Declining balance method Year Beginning of Period Book Value Depreciation Rate (%) Depreciation Expense Book Value 2017 130000 50% 65000 65000 2018 65000 50% 32500 32500 Depreciation formula under double decline method = 2 × Straight-line depreciation rate × Book value of Asset Straight Line Depreciation rate = 1/4 = 25% D) Capital cost allowance method Year Beginning of Period Book Value Depreciation Rate (%) Depreciation Expense Book Value 2017 130000 20% 26000 104000 2018 104000 20% 20800 83,200

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