If the asset described in Question 57 had a CCA rate of 30%, with the usual half-year rule, and were leased for 5 years, how would the lessee treat the five years of CCA? The lessee tax rate is 40%.The asset class uses declining balance.
A)Lessee would calculate the CCA amounts for each of the five years, apply the tax rate against these amounts, and show these amounts as cash outflows
B)Lessee would calculate the CCA amounts for the entire life of the asset, and show those amounts as cash flows
C)Lessee would ignore the CCA, since it is the lessor's financial province
D)Lessee would treat the CCA calculations for each of the five years of the lease as cash inflows for the lessor

Question

Quizplus · Accepted Answer

Since the asset is being leased, the lessor is the owner of the asset and entitled to claim the CCA. However, as part of the lease agreement, the lessor may pass on some or all of the tax benefits to the lessee by providing a lower lease rate. In this case, the lessee would need to calculate the CCA amounts for each of the five years, apply their tax rate against these amounts, and show the resulting amounts as cash outflows. This would accurately reflect the tax savings benefit received by the lessee.

If the Asset Described in Question 57 Had a CCA