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TIF Problem One - 1
TIF PROBLEM SIX - 15
Comprehensive Business Income
Darby Inc. has just completed its fiscal year ended December 31, 2018. Using GAAP, the accountant
has determined that, for that taxation year , the Company has experienced a Net Loss Before Taxes and
Amortization Expense of $113,000. The accountant provides the following information that was used in
the determination of the Net Loss for accounting purposes:
View answer V
1. The Company was forced to pay damages of $12,300 for failure to perform a service contract. The
amount was paid when the client threatened to bring action for breach of contract. The $12,300 was
expensed in the current year.
2. The Company's property tax expense of $19,500 includes an amount of $1,100 that was paid to a
regional municipality in which the Company maintains a fishing lodge for its employees.
3. The Company's expenses include contributions to registered charities of $13,700.
4. The Company's expenses include costs of new landscaping at their administration building in the
amount of $9,800.

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3. The Company's expenses include contributions to registered charities of $13,700.
4. The Company's expenses include costs of new landscaping at their administration building in the
amount of $9,800.
5. The Company deducted a loss of $10, 100 resulting from a theft by one of its clerical employees.
6. Effective December 31, 2018, as the result of a change in its distribution system, the Company was
forced to cancel a tenant's lease that would have been in force until January 1, 2026. During the
2018 taxation year, the Company agreed to pay, and deducted, damages in the amount of $17,000.
On December 31, 2018, $5,000 of this amount had not been paid.
7. The current salary expense included a bonus payable to the Company's president in the amount of
$14,500. It will be paid on February 1, 2019.
8. The insurance expense included the premium on a whole life policy on the life of the president's
wife in the amount of $9,500. This was not a group life policy and the proceeds were payable to the
Company.
9. As the Company changed property and casualty insurers during the year, all of its assets had to be
appraised. The cost of this appraisal was $4,150, with the entire amount being expensed in the year.
330
Canadian Tax Principles 2018/19 Edition - Test Item File Problems

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TIF Problem One - 1
10. The Company's wage expense included $51,000 in management bonuses (other than that of the
president described in item 7) that will not be paid until May 1, 2019. In addition, $34,000 in
bonuses, which were deducted for both tax and accounting purposes in 2017, were paid in March,
2018.
11. Bad debt expense amounted to $11,000.
12. Renovation costs in the amount of $153,000 were charged to expense during the year. This amount
resulted from the need to completely renovate one of the Company's offices and involved the
installation of plumbing and air conditioning systems, as well as rewiring and installation of new
concrete foundations.

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TIF Problem One - 1
13. The president and his wife attended a convention that resulted in $5,200 in travel expenses for the
Company. Of this amount, $1,900 related to the fact that the president's wife chose to accompany
him on this trip.
14. The Company's interest expense included bond discount amortization in the amount of $950.
15. The Company's legal expenses for the year amount to $10,500 and were related to the following
transactions:
Defense of breach of contract (see item 1)
$2,450
Cost of amending articles of incorporation
3,600
Defense costs related to income tax reassessment
4,450
16. The Company's expenses included a total amount of $12,500 for business meals and entertainment.
17. The Company's calculations for CCA have not yet been completed for the 2018 taxation year.
Required: Compute the Company's Net Income For Tax Purposes for the year ending December 31,
2018, before the consideration of CCA. Indicate why you have not included any of the preceding items
in your calculations.

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