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On January 1, 2010, Precision Machining Company purchased a new machine costing $46,000. The company uses straight-line

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On January 1, 2010, Precision Machining Company purchased a new machine costing $46,000. The company uses straight-line depreciation for book purposes and capital cost allowance (CCA) for tax purposes. The machine has an estimated useful life of eight years and a $2,000 residual value. For tax purposes, the machine is in an asset class with a CCA rate of 20%. The company's tax rate is 30% and it closes its books on December 31. In both 2010 and 2011, its earnings before depreciation and taxes are $100,000. Required:
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a Annual depreciation 46000 2000 8 5500 per year b For 2010 270 appears under the account title Defe...View the full answer


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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue

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