Canadian Donuts is looking at a new investment opportunity, which will require the purchase of a capital asset of $1 million and additional raw materials inventory of $50,000.The project is expected to generate operating revenue of $750,000 per year, and the associated operating expenses are estimated at $350,000 per year.The project has a five-year economic life.This capital asset belongs to asset class 8, which has a CCA rate of 20%.How much CCA would Canadian Donuts claim in year 3, assuming half-year rule is applicable for CCA in year 1?

Question

Quizplus · Accepted Answer

To calculate CCA, we use the formula: 
CCA = (Asset Cost – Salvage Value) x CCA Rate

In this case, the asset cost is $1 million, and the CCA rate is 20%. We are assuming the half-year rule applies, so in year 1, we can claim 20% x $1 million x 0.5 = $100,000 in CCA.

In year 2, the remaining asset cost would be $1 million - $100,000 = $900,000. We can claim 20% x $900,000 = $180,000 in CCA.

In year 3, the remaining asset cost would be $1 million - $100,000 - $180,000 = $720,000. We can claim 20% x $720,000 = $144,000 in CCA.

Therefore, the answer is C) $144,000.

Canadian Donuts Is Looking at a New Investment Opportunity, Which