Reference no: EM133170208

Question - Blue Spruce Corp. purchased Machine no. 201 on May 1, 2020. The following information relating to Machine no. 201 was gathered at the end of May:

Price $74,000

Credit terms 2/10, n/30

Freight-in costs $700

Preparation and installation costs $3,100

Labour costs during regular production operations $8,500

It was expected that the machine could be used for 10 years, after which the residual value would be zero. However, Blue Spruce intends to use the machine for only eight years and expects to then be able to sell it for $1,200. The invoice for Machine no. 201 was paid on May 5, 2020. Blue Spruce has a December 31 year end. Depreciation expense should be calculated to the nearest half month. Blue Spruce follows IFRS for financial statement purposes.

1. Straight-line method for the fiscal years ended December 31, 2020 and 2021

2. Double-declining-balance method for the fiscal years ended December 31, 2020 and 2021

3. Calculate the capital cost allowance for the 2020 and 2021 tax returns, assuming a CCA class with a rate of 25%.

4. How would the calculation change for 2020 and 2021 based on the new CCA rules implemented in late 2018 (see footnote 20) assuming this is "eligible property"?

5. Assume that Blue Spruce selects the double-declining-balance method of depreciation. In 2022, demand for the product produced by the machine decreases sharply, due to the launch of a new and better competing product on the market. On August 15, 2022, the management of Blue Spruce meets and decides to discontinue manufacturing the product. On September 15, 2022, a formal plan to sell the machine is authorized. On this date, the machine meets all criteria for classification as held for sale, and the machine's fair value less costs to sell is $53,500. Calculate the depreciation expense for 2022.