FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Capital Cost Allowance

Show Answer

Share

---

All types

Filters

Study Flashcards

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following assets is NOT eligible for capital cost allowance in the current year?

A) A delivery truck is purchased in December of the current year. The truck is not paid for until January of the following year.
B) An employee owns and uses a truck for employment duties during December. His pay for December is not received until January of the following year.
C) A delivery truck is leased during the year on a 3 year lease.
D) A delivery truck is purchased during the year on a 3 year financing term.

E) A) and B)
F) B) and D)

Correct Answer

verified

Show Answer

Question 2

Essay

Review LaterAdd Note

Review Later

When a depreciable asset is sold or retired, the procedures used for tax purposes are usually very different than those used for accounting purposes. Describe the differences between the procedures used for tax purposes and those that would be required under generally accepted accounting principles for dispositions of depreciable assets.

Correct Answer

verified

The procedures to be used under generall...

View Answer

Show Answer

Question 3

Essay

Review LaterAdd Note

For CCA purposes, most assets are allocated to a Class that contains all of the assets of that Class. However, in some cases individual assets have to be allocated to a separate Class, resulting in multiple balances for that Class. What are some examples of this type of situation?

An asset with a capital cost of $70,000 was sold on May 1 for $90,000. An asset was purchased on May 15 for $100,000. Minimum UCC on January 1 of the following year is:

Indicate which of the following items would not be added to Class 14.1.

Which of the following statements with respect to terminal losses is NOT correct?

The calculation of amortization expense under generally accepted accounting principles and the determination of CCA to be deducted for tax purposes can be viewed as somewhat similar procedures. However, there are some differences that arise in the application of these procedures. Describe the similarities and differences between the procedures used to calculate amortization expense for accounting records and those procedures used to establish the amount of CCA to be deducted in tax returns.

On January 1, 2020 Jorge purchased two newly constructed rental buildings for $350,000 each. Of the total cost of $350,000 for each building, $100,000 represents the value of the land on which the building is situated. One building contains four suites and is rented to students. The other building is rented to a florist business. Each of the buildings is allocated to a separate Class 1. Net rental revenue (before CCA) for 2020 is $30,000. The maximum CCA deduction for 2020 is:

During 2020 Desiderata Design Corp. purchased a new BMW for $42,000. The car is used exclusively for business use. The maximum CCA deduction for 2020 is:

In the current fiscal year, a corporation acquired a rental property from its sole shareholder. The building was transferred at its fair market value of $125,000, but was not allocated to a separate Class 1. The shareholder originally paid $150,000 for it. The property was included in Class 1 (4%) on the shareholder's tax return. The shareholder has earned rental income on the property since its acquisition. The undepreciated capital cost of the building at the time of the transfer was $120,000. Which one of the following amounts represents the maximum allowable capital cost allowance that the corporation may claim for this building in the current fiscal year?

During the current year, Denos Corporation incurred costs of $45,000 for leasehold improvements to its newly rented building. The lease was signed in the current year for an initial term of three years plus four successive options to renew the lease, each for an additional one year term. Which one of the following amounts represents the maximum capital cost allowance claim in the current year?

For each of the following depreciable assets, indicate the appropriate CCA Class. • Cash registers • Boats, canoes, and other vessels • Airplane runways • Automobile (i.e., passenger vehicle)with a cost of $85,000 • Storage tanks for oil • Residential rental property acquired in 2015 for $450,000 (Value of land equals $100,000) • Manufacturing and processing equipment acquired in 2020

Multilink Inc. has a December 31 year end. In January, 2020, Multilink Inc. acquires five photocopiers at a cost of $5,500 each. In December, 2020, two of these photocopiers are upgraded for newer models. The new photocopiers cost $6,000 each, and the Company receives an upgrade allowance for each old photocopier of $2,000. Indicate the amount(s)that would be deducted from 2020 business income if no election is made to put each photocopier in a separate class. Contrast this with the deduction(s)that would be available if the separate class election is used.

Fred opened his MacDingle Restaurant franchise on November 1, 2020. He paid $50,000 for the franchise rights and can use them for an unlimited number of years. The restaurant's fiscal year end is December 31. The maximum CCA deduction was taken for 2020. The Class 14.1 balance on January 1, 2021 is:

On December 1 of the current year, Plen Limited purchased a franchise for $70,000. The franchise has a limited life of 15 years. Which one of the following amounts represents the maximum amount of capital cost allowance Plen Limited can deduct for its current year ending on December 31?

Fielding Inc. is incorporated on August 1, 2020. On September 15, 2020, the Company acquires $150,000 in Class 10 assets. The Company has a December 31 year end and no other depreciable assets are acquired before December 31, 2020. Determine the maximum CCA for the fiscal year ending December 31, 2020.

Votex Inc. closes its books on December 31 of each year. On January 1, 2020, the following information on the CCA classes of the business was contained in its records: Class 1 - The buildings in Class 1 were acquired in January, 2009 at a cost of $734,000, with $84,000 of this total being allocated to land. The UCC balance on January 1, 2020 was $562,154. Class 8 - The equipment in Class 8 was acquired in January, 2014 at a cost of $78,500. The UCC balance on January 1, 2020 was $23,520. Class 10 - The vehicles in Class 10 were acquired in June, 2017 at a total cost of $82,000. The UCC balance on January 1, 2020 was $34,153. During the 2020 fiscal year, the following transactions occurred: Sale Of Equipment - As the result of an extensive analysis, it is decided that it would be better to sell the existing equipment and to replace it with improved equipment that will be leased. The old equipment is sold for $32,500. Sale Of Buildings - A similar decision is made with respect to the buildings. They are sold for $825,000 and replaced with leased premises. Of the $825,000 received, $100,000 is for the land on which the buildings are situated. The lease term is for 4 years with no options for renewal. A total of $81,000 is spent on leasehold improvements to make the buildings more suitable for the business. Sale Of Vehicles - The Class 10 vehicles were sold during the current year and replaced with leased vehicles. The sale proceeds totaled $27,500 with no vehicle being sold for more than its cost. Sale Of Goodwill - In order to further streamline its operations, Votex Inc. sells off a portion of its operations to another company. No depreciable or tangible capital assets were disposed of in this transaction. However, an amount of $225,000 was received for the goodwill of this portion of the business. Required: For the taxation year ending December 31, 2020 calculate the maximum CCA that can be deducted by Votex Inc. for each CCA class. In addition, calculate the January 1, 2021 UCC balances and indicate any other tax consequences that would result from the described transactions.

On January 1, 2020, Don Buchanan acquires a business that has goodwill. The amount of the purchase price that is allocated to goodwill is $60,000. The business has a taxation year that ends on December 31 and, for 2020, Don takes the maximum CCA deduction. On January 1, 2021, the business is sold. It is estimated that $82,000 of the sale price was for the goodwill. The resulting increase in Don's 2021 Net Income For Tax Purposes is:

Barber Ltd. has a Class 10 balance of $423,000. During the current year, an asset which cost $42,000 is sold for $51,000. There are no other dispositions during the year and there are over 50 assets left in Class 10. What are the tax consequences of this disposition?

During 2020, the Lardly Company spent $675,000 to acquire a government license with an unlimited life. The Company's accountant, because of his limited experience with assets of this type, allocated this cost to Class 8. This error was discovered in early 2021. What was the impact of this error on the Company's 2020 deductions from business income?