AnaxCorporation purchased a long-term asset for $100,000. The asset has a 30% CCA rate. At the end of year 5, Anax sold the asset for 25% of its original value. Given this information, determine
The value of the terminal loss or recapture at the end of year 5.

Question

Quizplus · Accepted Answer

The CCA for each year is calculated as follows:
Year 1: $100,000 x 30% = $30,000
Year 2: ($100,000 - $30,000) x 30% = $21,000
Year 3: ($70,000 - $21,000) x 30% = $14,700
Year 4: ($48,700 - $14,700) x 30% = $10,260
Year 5: ($34,000 - $10,260) x 30% = $7,212
Total CCA = $83,172

The undepreciated capital cost (UCC) at the end of year 5 is:
$100,000 - $83,172 = $16,828

The asset was sold for 25% of its original value, which is $25,000.

Since the proceeds from the sale are less than the UCC, there is a recapture of CCA in the amount of:
$25,000 - $16,828 = $8,172

The recapture is then included as income for tax purposes, and the terminal loss is calculated as the lesser of:
- The UCC minus the proceeds from the sale ($16,828 - $25,000 = $8,172), or
- The total CCA claimed ($83,172)

Therefore, the value of the terminal loss or recapture at the end of year 5 is a recapture of $4,591 (Option A).

AnaxCorporation Purchased a Long-Term Asset for $100,000