Use the information below to answer the following question(s).Albernie Ltd.purchased a CCA Class 8 (CCA rate of 20%)item of equipment for $90,000.The equipment was the only item in the Class 8 capital cost allowance pool.The equipment is expected to generate savings in the amount of $40,000 per year.The company uses straight-line depreciation, estimates a 3 year useful life with $20,000 salvage value for the new equipment.The tax rate is 35%, and Albernie has a required rate of return of 9.0%.
-What is the maximum capital cost allowance that Albernie Ltd.can claim in year 2, if the maximum was claimed in year 1?
A)$11,200
B)$12,600
C)$18,000
D)$16,200
E)$14,400

Question

Quizplus · Accepted Answer

The maximum capital cost allowance (CCA) that can be claimed in year 2, if the maximum was claimed in year 1, can be calculated as follows:

Year 1 CCA = $90,000 x 20% = $18,000
Year 2 CCA = ($90,000 - $18,000) x 20% = $14,400

However, since the maximum CCA was claimed in year 1, the Year 2 CCA will be reduced by half of the Year 1 CCA. Therefore:

Adjusted Year 2 CCA = $14,400 - ($18,000 / 2) = $9,900

Therefore, the maximum capital cost allowance that Albernie Ltd. can claim in year 2 is $9,900, which is option D.

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