ACCO
Acco340Sample Problems

# Cost nil capital gain 110000 taxable capital 0 to the

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Cost      Nil                               Capital Gain        110,000           Taxable Capital Gain @ 50% 55,000 To the extent that Bard Ltd deducted amounts under ITA 20(1)(b), this negative balance must be included in income in full. However, it does not appear that any such deductions were made. As a consequence, the full amount will be adjusted to the current capital gains inclusion rate of one-half, resulting in an income inclusion of \$55,000 [(1/2)(\$110,000 - Nil)]. LEASEHOLD IMPROVEMENTS - Class 13 Straight Line The leasehold improvements are to be written off over a 6 year period (ie, the initial 3 year period plus the first 3- year option). The required calculations are as follows: Additions : Capital Cost \$30,000 Amount Subject To CCA 30,000 / 6 years = 5,000 per year 2010 CCA [5,000 x One-Half Year rule= 2,500) ( 2,500)* January 1, 2011 UCC Balance \$27,500 * Class 13 CCA is based on a straight line amount of \$2,500 in the first year, \$5,000 for the next 5 years and the balance of \$2,500 in the 7 th year, for a full deduction of the initial \$30,000 capital cost NOTE; SUMMARIES NOT REQUIRED UNLESS SPECICICALLY REQUESTED BY THE PROBLEM

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Lecture 5- Business Income Reconciliation Computation Of Business Income The condensed before tax Income Statement for Swindex Incorporated for the year ending December 31, 2010, prepared from information included in its financial statements, is as follows: Sales \$3,000,000 Cost Of Sales ( 1,570,000) Gross Margin \$1,430,000 Other Expenses (Not Including Taxes) ( 755,000) Operating Income Before Taxes \$ 675,000 Other Income And Losses 275,000 Income Before Taxes \$ 950,000 Other Information: 1. During the year, the Company spent \$5,200 for landscaping its head office grounds. For accounting purposes this was treated as a capital expenditure, but was not amortized during the current year. 2. The Other Expenses (Not Including Taxes) account included the following amounts: Bond discount amortization \$ 500 Interest on deficient corporate tax instalments 1,700 Reserve for inventory declines 96,300 Interest paid on bonds issued 22,000 Amortization expense 36,500 Cost of advertising in magazine distributed only in Jamaica 22,000 Charitable donations 19,100 Cost of sponsoring local hockey teams 3,200 Cost of advertising circulars (One-half have been distributed) 15,000 3. The Other Income And Losses account contains the following items: Damages paid for breach of contract \$18,000 Loss from theft 2,800 Cost of appraisal of property to be sold 3,800 Required: Using the preceding information, produce a schedule that calculates Swindex Incorporated’s Net Income For Tax Purposes (Division B income) for the year ending December 31, 2010. Include and provide reasons for any items that were excluded from your calculations. In preparing your solution, ignore any deductions associated with depreciable assets or eligible capital property.
Solution: Computation Of Business Income SUGGESTED SOLUTION FORMAT The Net Income For Tax Purposes of Swindex Inc. for the year, ignoring CCA, would be calculated as follows: Accounting Income Before Taxes \$ 950,000

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• Fall '10
• Mastromonaco
• CCA, nil nil nil, Mrs. Vera Smiles, Mr. Samuel Kern

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