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 3.

A) $7,140
B) $8,250
C) $9,360
D) $10,470
E) $11,580

Question

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 3.A)  $7,140B)  $8,250C)  $9,360D)  $10,470E)  $11,580

Abdullah Sehaim · Accepted Answer

Final Answer : A, Explanation :  The CCA for year 3 is calculated using the declining balance method. 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. However, the correct calculation involves adding the CCA from the first half of the first year, which is calculated as half of the first year's CCA (since assets acquired during the year are treated as if acquired at the midpoint of the year for CCA purposes), so the correct Year 1 CCA should be $6,000 (half of $12,000), making the total CCA for the first three years $6,000 (Year 1) + $10,200 (Year 2, recalculated on the new balance of $34,000) + $7,140 (Year 3, recalculated on the new balance of $23,800). Therefore, the correct answer for Year 3 CCA is $7,140.

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 3.

A) $7,140
B) $8,250
C) $9,360
D) $10,470
E) $11,580

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