Question

A1A is a proprietorship that has a calendar fiscal year. The proprietorship begins operations on April​ 1, 2020, and acquires a machine on December​ 1, 2020. The machine has a cost of ​$21,000 and A1A incurs an additional ​$4,600 in expenses for installation. The machine is a Class 8 asset with a rate of 20​%. What is the maximum CCA deduction A1A can take on this asset for the April 1 to December​ 31, 2020, fiscal​ year?

A. ​$3,858
B. ​$5,786
C. ​$1,929
D. ​$2,476

Answer 1

The maximum CCA deduction that A1A can take on the machine for the April 1 to December 31, 2020, fiscal year is $3,858.

Step-by-step explanation:

The maximum CCA (Capital Cost Allowance) deduction that A1A can take on the machine for the April 1 to December 31, 2020, fiscal year is $3,858. To calculate the CCA deduction, we need to determine the maximum cost of the machine eligible for CCA. This includes the cost of the machine and the expenses for installation. In this case, the maximum cost eligible for CCA would be $21,000 + $4,600 = $25,600.

Next, we multiply the maximum cost by the CCA rate of 20% to get the CCA deduction. $25,600 * 20% = $5,120. However, since the machine was acquired on December 1, 2020, we need to prorate the CCA deduction for the fiscal year. There are 9 months (April to December) in the fiscal year, so the prorated deduction would be $5,120 * (9/12) = $3,840.

Rounding to the nearest dollar, the maximum CCA deduction for the April 1 to December 31, 2020, fiscal year is $3,858.