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Ch 5 AP 4,6,7,14 and Solutions

# Ch 5 AP 4,6,7,14 and Solutions - AIT805 Chapter 5 Selected...

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AIT805 Chapter 5 Selected Assignment Problems and Solutions Problem 4 (Basic) The following are independent situations: (a) Gimcrack Inc. purchases its sole asset, costing \$100,000, on February 15. The company has a February 28 year end. The asset purchased is a Class 8 asset. REQUIRED Calculate the capital cost allowance that may be claimed in the taxation year under the following independent scenarios. Fiscal period is 365 days. Fiscal period is 90 days. (b) RSI Ltd. sells computers and has a December 31 year end. RSI Ltd. leased a warehouse this year for ten years with a renewal option of two years and a second renewal option of three years. Leasehold improvements of \$25,000 were made to the warehouse during the year. RSI has no other leasehold improvement assets. REQUIRED Calculate the maximum amount of CCA that may be claimed in this, the first taxation year. (c) Constabulary Ltd. acquired franchise rights for the amount of \$25,000 to operate a doughnut and coffee shop. The franchise is valid for a period of 15 years commencing March 1. Constabulary Ltd.'s year end is July 31. REQUIRED What CCA or other deduction is Constabulary Ltd allowed this year? Solution 4 (Basic) (a) (i) \$100,000 × 20% × 1 / 2 = \$10,000 (ii) \$100,000 × 20% × 1 / 2 × (90/365) = \$2,466 In (ii), CCA is prorated because the taxation year is less than 365 days. (b) Leasehold improvements — CCA is lesser of (1) \$25,000 × 1 / 5 × 1 / 2 = \$2,500 (2) \$25,000 × 1 / 12 × 1 / 2 = \$1,042 (Twelve years is the denominator; this includes the initial lease term and the first renewal period.) (c) The franchise is for a limited term, hence it is a class 14 asset. The CCA on Class 14 assets is computed on a straight-line basis over the remaining life of the asset. The half-year rule does not apply to Class 14. CCA allowed to July 31 (153 days) is: \$25,000 × 1 / 15 × (153/365) = \$699 AIT805 Chapter 5 Page 1 of 9

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Problem 6 (Basic) Mr. E. Presley has been operating an automobile repair business since 1995. The fiscal period of the corporation ends on September 30. The business owns the following assets: (a) A frame building used as a garage was acquired in 1998. The capital cost of the building in 1998 was \$250,000. The UCC of this Class 3 asset was \$208,985 as of the last year end. During the current year, renovations were made to the garage in the amount of \$20,000. (b) A warehouse adjacent to the frame building was leased. The lease has a term of five years with five options for renewal of five years each. The lease period commences April 15. The cost of leasehold improvements was \$70,000. (c) Computer equipment was acquired on February 15, 2005. The UCC at October 1, 2007 is \$40,000. The equipment was used to perform analysis for repairs. (d) Two trucks were acquired in a previous fiscal period. The UCC as of the last year end for these Class 10 assets was \$25,000. One of the trucks was sold this year for gross proceeds of \$10,000. The capital cost of the truck was \$15,000. Selling costs incurred to sell the truck were \$1,000.
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Ch 5 AP 4,6,7,14 and Solutions - AIT805 Chapter 5 Selected...

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