Question

Ayayai Corp. purchased machinery for $417,000 on May 1, 2023. It is estimated that it will have a useful life of 10 years, residual value of $17,000, production of 160,000 units, and 20,000 working hours. The machinery will have a physical life of 15 years and a salvage value of $3,000. During 2024, Ayayai used the machinery for 2,000 hours and the machinery produced 26,500 units. Ayayai prepares financial statements in accordance with IRFS. From the information given, calculate the depreciation charge for 2024 under each of the following methods, assuming Ayayai has a December 31 year end.

Calculte the capital costs allowance for 2024 when the CCA rate is 20%, assuming the machinery is eligible for the Accelerated Investment Incentive.

Answer 1

The depreciation charge for 2024 is $4,000 using the straight-line method and $66,250 using the units-of-production method.

Step-by-step explanation:

To calculate the depreciation charge for 2024, we need to determine the depreciation expense using the straight-line method and the units-of-production method.

Straight-Line Method:

Calculate the depreciable cost by subtracting the estimated residual value from the initial cost: $417,000 - $17,000 = $400,000.

Divide the depreciable cost by the useful life in years: $400,000 / 10 = $40,000 per year.

Multiply the annual depreciation expense by the proportion of hours used in 2024: $40,000 * (2,000 / 20,000) = $4,000.

Units-of-Production Method:

1. Calculate the depreciable cost per unit by subtracting the estimated residual value from the initial cost and dividing by the total units of production: ($417,000 - $17,000) / 160,000 = $2.50 per unit.
2. Multiply the depreciable cost per unit by the actual units produced in 2024: $2.50 * 26,500 = $66,250.

Therefore, the depreciation charge for 2024 is $4,000 using the straight-line method and $66,250 using the units-of-production method.