Widget Production Ltd. has a fiscal year end of June 30. In February 2018, the Company borrowed $750,000 to fund an expansion. The Company paid $21,000 to obtain this financing. In January 2019, the Company repaid $250,000 of the principal and in June 2020, it repaid the remaining $500,000. All repayments were made from cash flow from operations. For tax purposes, which one of the following schedule of claims represents the most rapid method of claiming the costs of obtaining this financing?

Question

Quizplus · Accepted Answer

The most rapid method of claiming the costs of obtaining financing is to amortize the expense as quickly as the tax laws allow, which typically aligns with the repayment schedule of the loan. Since the loan was partially repaid in 2019 and fully repaid by 2020, option B allows for the fastest claim of the financing costs by matching the expense recognition with the principal repayment schedule.