A $40,000 asset was purchased and classified as a Class 10 asset for CCA purposes. If the CCA rate is 30%, calculate CCA for year 5.

Question

Quizplus · Accepted Answer

The CCA for a Class 10 asset at a 30% rate is calculated using the declining balance method. For year 5, the calculation is as follows: Year 1 CCA = $40,000 * 30% = $12,000, leaving a balance of $28,000. Year 2 CCA = $28,000 * 30% = $8,400, leaving a balance of $19,600. Year 3 CCA = $19,600 * 30% = $5,880, leaving a balance of $13,720. Year 4 CCA = $13,720 * 30% = $4,116, leaving a balance of $9,604. Year 5 CCA = $9,604 * 30% = $2,881.2, but since CCA is rounded to the nearest dollar, it would be approximately $2,881, which is not an option here. The correct calculation involves the half-year rule in the first year, which I initially overlooked. Applying the half-year rule, Year 1 CCA = $40,000 * 30% * 0.5 = $6,000, leaving a balance of $34,000. Then, for Year 2 through Year 5, the calculation follows the declining balance method but starts from the adjusted initial balance. Correcting this oversight and recalculating, the closest match to the provided options for Year 5's CCA would indeed be $3,499, acknowledging a mistake in the initial step-by-step calculation without applying the half-year rule correctly.

A $40,000 Asset Was Purchased and Classified as a Class