Question

Opening UCC balances

Class 1 $330,000

Class 8 $56,000

Class 10.1 $21,000

Class 13 $45,000

Class 50 $260,000

Any other classes have an opening balance of nil.

The company purchased furniture on February 1, 2020 for $46,372.

Calculate the maximum impact on business income for the year from furniture and other miscellaneous tangible capital assets.

Answer 1

Maximum impact on business income for the year from furniture and other miscellaneous tangible capital assets.

Business Income will be impacted by Depreciation for the year on Tangible Captal Assets and Furniture. Depreciation will be levied on full year on Tangible Captal Assets and from February to September on furniture. So, Businesss Income will get reduced by Depreciation amount.

Depreciation is an wear and tear of assets, since we use the assets its value gets reduced over a period of time and that value fall is booked as depreciation in books of accounts.

Depreciation is an non cash expense i.e. no cash outflow takes place in books and yet income gets reduced which result in less tax laibility. Depreciation is a tool used by financial planner and entrepreneur to reduce their profits and claim expense in the books without cash going out. When there is an huge tax liability, it is recommended to buy depreciable asset and claim depreciation on it so that tax liability gets reduced.

Depreciation is available on all assets except Land as it is considered as appreciatble asset and depreciation is levied on depreciable assets. Depreciable Assets are those assets whose value gets reduced over a period of time.

Therefore, maximum impact on business income would be depreciation amount only.

Maximum Impact = Business Income - Depreciation Amount.