On June 15, 2017, 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.

Instructions

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. Round final amounts to the nearest dollar.

1. Straight-line method. Pro-rate June 2017 and 2022 to half a month.

2. Activity method: based on output

3. Activity method: based on input

4. Double-declining-balance method. Pro-rate June 2017 to half a month.

5. Taxation CCA, Class 8, 20%

b. What is the machine?s carrying amount on the October 31, 2020 statement of financial position under the first four methods above?

c. Digging Deeper Compare your answers in part (b) with the asset?s tax value at the same date.

d. Which method would the company?s management prefer in order to minimize taxes in 2017?

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?

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Units Produced 110,000 270,000 264,000 310,000 134,000 Hours of Operation 10,000 20,000 20,000 20,000 18,000 12,000 Year 2017 2018 2019 2020 2021 2022 112,000