A machine that produces cell phone components is purchased on January 1, 2011, for $100,000. It is expected to have a useful life of four years and a residual value of $10,000. The machine is expected to produce a total of 200,000 components during its life, distributed as follows: 40,000 in 2011; 50,000 in 2012; 60,000 in 2013; and 50,000 in 2014. The company closes its books on December 31 each year.
Required:
a. Calculate the amount of depreciation to be charged each year, using each of the following methods:
i. Straight-line method
ii. Production method
iii. Double-declining-balance method
b. Which method results in the highest depreciation expense:
i. during the first two years?
ii. over all four years?
c. Calculate the amount of capital cost allowance that could be claimed in each of the first two years, assuming the machine is subject to a CCA rate of 40%.