SNZ Inc. purchased machinery and equipment in the amount of $30,000 on January 1, 2013. SNZ plans to depreciate the asset straight-line over 20 years with no salvage value. For tax purposes these assets are to be depreciated using a capital cost allowance rate of 20%. The half-year rule applies. SNZ pays tax at a rate of 25%. What is the amount of the temporary difference between straight line depreciation and capital cost allowance on December 31, 2013?

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Quizplus · Accepted Answer

The temporary difference is the difference between the book value and the tax value of the asset. The book value is depreciated straight-line over 20 years, while the tax value is depreciated using a capital cost allowance rate of 20%. The half-year rule applies, so the capital cost allowance for the first year is 10%. The temporary difference is the difference between the book depreciation and the capital cost allowance, which is $3,000 - $2,000 = $1,500.

SNZ Inc Purchased Machinery and Equipment in the Amount of $30,000