Deck 6: The Acquisition, Use, and Disposal of Depreciable Property

Question 1

Which of the following cases is not eligible for capital cost allowance in the current year?

A)An employee owns and uses an automobile in the course of her employment duties during the month of December. Her pay for December is not received until January of the following year.
B)A new engine is installed in a semi-trailer that is used to haul produce to the United States.
C)A piece of equipment was purchased during the year on a 5 year financing term.
D)A building under construction is scheduled for completion in eighteen months. The building will be used as a production facility.

Answer 1

D

Question 2

(Adapted from "Problem Eleven" from Chapter Six of previous editions of the textbook)
Alpha Ltd. is a Canadian-controlled private corporation operating a small land-development business 20x2, the company acquired a license to manufacture pre-fab homes and began operations immediate Financial information for the 20x2 taxation year is outlined below:
Alpha's profit before income taxes for the year ended November 30, 20x2, was $245,000, as follows: The loss on sale of property results from two transactions. On October 1, 20x2, Alpha sold all of its s Ltd., a 100% subsidiary, for $100,000. (The shares were acquired seven years ago for $80,000.)Also the year, Alpha sold some of its vehicles for $25,000.The vehicles originally cost $50,000 and had a of $48,000 at the time of sale. New vehicles were obtained under a lease arrangement.
The 20x1 corporate tax return shows the following UCC balances:
Alpha occupies leased premises under a seven-year lease agreement that began three years ago. At th Alpha spent $60,000 to improve the premises. The lease agreement gives Alpha the option to renew for two three-year periods. Alpha began manufacturing pre-fab homes on June 1, 20x2. At that time,
acquired the following:
Accounting amortization in 20x2 amounted to $60,000.
Alpha normally acquires raw land, which it then develops into building lots for resale to individuals contractors. In 20x2, it sold part of its undeveloped land inventory to another developer for $400,000 realized a profit of $80,000, which is included in the land-development income above. The proceeds of $40,000 in cash, with the balance payable in five annual instalments beginning in 20x3.
Travel and entertainment expense includes the following: Legal and accounting expense includes the following: Required:
Calculate Alpha's net income for tax purposes for the 20x2 taxation year.

Answer 2

Question 3

Ben incorporated Miller Co. in 20x7, which then purchased a small business. The incorporation costs were $3,500, and the goodwill acquired from the small business
Equaled $50,000. What is the ending Class 14.1 UCC balance in 20x8 (assuming there are no other intangible assets in the company)? (Rounded to 0 decimal places)

A)$46,776
B)$50,825
C)$49,554
D)$47,975

Answer 3

A

Question 4

Green Gardens Inc. purchased a piece of Class 8 machinery in 20x0. The cost of the machine was $5,000. In 20x2, the machine was sold for proceeds of $2,000 and there were no other purchases or disposals during the year. The UCC in the Class 8 pool was
$5,500 at the beginning of 20x2. What is the UCC of this class at the end of 20x2?

A)$4,800
B)$3,500
C)$700
D)$2,800

Question 5

ABC Corp. leased an office and paid $20,000 for leasehold improvements in January of this year. Th included drywall, new carpets, and all new light fixtures. The term of the lease is 2 years plus an opti renew for 2 more years.
Required:
Calculate the maximum CCA that ABC Corp. will be allowed to deduct this year.

Question 6

Which of the following situations would not be permitted to defer the recognition of any recapture that might arise from the disposition of an asset?

A)A customized half-ton truck that belonged to a construction company was sold in 20x0. The proceeds from the sale generated recapture. A new customized truck was purchased fourteen months later in order to carry out the duties of a large contract
Awarded to the company.
B)A building that was used for income earning purposes was sold in December 20x0. The proceeds from the sale generated recapture. A new building was purchased in April 20x1. The company's fiscal year-end is December 31st.
C)A half-ton truck that belonged to a construction company was stolen in 20x0. Insurance proceeds were received which generated recapture. The truck was replaced in 20x1.
D)A building that was used for income earning purposes was destroyed in a fire. Insurance proceeds were received which generated recapture. A new building was built one and a half years later.

Question 7

Green Business Ltd. (GBL)began operating ten years ago, and has always claimed maximum CCA. The company has a December 31st year-end.
The following information is known about GBL's capital assets:
The undepreciated capital cost in Class 8 was $10,000 at the end of 20x1. None of the assets in the c purchased in 20x1.
In 20x2, GBL expanded into the manufacturing of recycle bins and purchased a Class 43 asset for $5 The undepreciated capital cost in Class 10 was $12,000 at the end of 20x0. Due to the company's
growth, GBL sold the only asset in the pool (a small pickup truck)on December 20th of 20x1 for
$5,000. On the same day, GBL spent $8,000 on a slightly larger used truck to use temporarily until an appropriate work truck could be found in the upcoming year. The company did not conduct any business activities between December 20th, 20x1 and January 2nd, 20x2.
Required:
Calculate the net increase or decrease in GBL's net income for tax purposes for 20x2 if the maximum claimed.
Based strictly on the information provided, what tax advice would have been beneficial for GBL in 2 order to minimize the company's net income for tax purposes?

Question 8

Which of the following statements regarding recapture is true?

A)Recapture occurs when there is a positive balance in a class pool, even if there are assets remaining in that class pool.
B)Recapture occurs when there is a negative balance in a class pool, even if there are assets remaining in that class pool.
C)Recapture may be deducted from business income.
D)Recapture only occurs when there is a positive balance in a class pool and that pool of assets is empty.