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chap05 - CHAPTER 5 Depreciable Capital Property and...

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CHAPTER 5 Depreciable Capital Property and Eligible Capital Property Problem 1 [ITA: 13(1), (2); 20(1)(a), (16.1); ITR: 1100(1), (2.5); 1101(5p); 1103(2h); 7307(1)(b); Sched. II, III] On March 1, 2004, Jennifer Lobo began operating as a sole proprietorship and purchased the licence to manufacture the computer software version of the latest trivia game, “Tax is a Microcosm of Life on CD”. During the remainder of 2004, she acquired the following assets: Manufacturing equipment ........................................... $ 20,000 Tools (each costing under $200) ................................. 16,000 Dies and moulds .......................................................... 8,000 Computer equipment and systems software ................ 12,000 Photocopier ................................................................. 6,000 Office furnishings ........................................................ 15,000 Customer lists (expected to be used indefinitely) ........ 4,000 Delivery van ................................................................ 30,000 T.V. commercial video tape ........................................ 22,000 Chairs and tables (for the employee eating area) ......... 2,500 Cutlery and dishes (for the employee eating area) ...... 2,000 Table linens (for the employee eating area) ................ 1,200 Automobile (for use by sales personnel visiting clients) ................................................................. 38,000 Licence to manufacture, based on patented information, “Tax is a Microcosm of Life on CD” for 3 years ending February 28, 2007 ......... 30,000 Made improvements on the building that she leased on March 1, 2004; the lease was for 3 years with two successive options to renew of 3 years and 4 years .......................................................... 9,000 During 2005, she made the following additional purchases and disposals: Bought a brick building and land in order to accommodate the expansion of her building; an appraisal indicated that the building represented 45% of the total cost of the property ................... $ 200,000 Sold the photocopier ................................................... (4,000) Sold the automobile .................................................... (23,000) Sold the T.V. commercial video tape ......................... (18,000) Sold some of the tools (costing less than $200 each). (5,000) REQUIRED Prepare a schedule to show the maximum capital cost allowance for the fiscal years ended December 31, 2004 and December 31, 2005, ignoring GST and PST considerations. Where choices are available, state the reasons for your decision. Ignore the effects, if any, of the leap year. 89
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Introduction to Federal Income Taxation in Canada Solution 1 Cl. 1: Cl. 8: Cl. 8: Cl. 10: Cl. 10: Cl. 10.1: Cl. 12: Cl. 13: Cl. 14: Cl. 43: 4% 20% 20% 30% 30% 30% 100% S.L. S.L. 30% $ $ $ $ $ $ $ $ $ $ Mar. 1, 2004 Purchases: Manufacturing equipment ............... 20,000 Tools ......................... 16,000 Dies and moulds ....... 8,000 Computer equip- ment/software 1 ........ 12,000 Photocopier ............... 6,000 Office furnishings ..... 15,000 Delivery van ............. 30,000 T.V. commercial video tape ............... 22,000 Chairs and tables ....... 2,500 Cutlery and dishes ..... 2,000 Table linens .............. 1,200 Automobile 3 .............. 30,000 Licence to manufacture 4 .......... 30,000 Leasehold improvements 6 ........ 9,000 Dec. 31, 2004 U.C.C. before adjustment ...... 6,000 17,500 12,000 30,000 30,000 49,200 9,000 30,000 20,000 1 / 2 net-amount 5 .......... (3,000) (8,750) (6,000) (15,000) (15,000) (15,000) (10,000) U.C.C. before C.C.A. 3,000 8,750 6,000 15,000 15,000 34,200 9,000 30,000 10,000 C.C.A. prorated 306 / 365 days ........................ (503) (1,467) (1,509) (3,773) (3,773) (28,672) (629) (8,384) (2,515) 1 / 2 net-amount ........... 3,000 8,750 6,000 15,000 15,000 15,000 10,000 Jan. 1, 2005 U.C.C ......... 5,497 16,033 10,491 26,227 26,227 20,528 8,371 21,616 17,485 Purchases: Brick building 7 ....... 90,000 Office furniture ...... Disposals: Photocopier ............ (4,000) Automobile 8 ........... (23,000) Office furnishings... T.V. commercial video tape ............ (18,000) Small tools ............. (5,000) Dec. 31, 2005 U.C.C. before adjustment ...... 90,000 1,497 16,033 10,491 26,227 (3,277) (-2,472) 8,371 21,616 17,485 1 / 2 net-amount ........... (45,000) U.C.C. before C.C.A. 45,000 1,497 16,033 10,491 26,227 Nil (2,472) 8,371 21,616 17,485 C.C.A ........................ (1,800) (3,207) (3,147) (7,868) (3,934) (1,500) (10,000) (5,245) Recapture .................. 2,472 Terminal loss ............ (1,497) 1 / 2 net-amount ........... 45,000 Jan. 1, 2006 U.C.C ......... 88,200 Nil 12,826 7,344 18,359 Nil Nil 6,871 11,616 12,239 — NOTES TO SOLUTION (1) She should elect [Reg. 1101(5p)] to include the photocopier in a separate Class 8 from the office
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