Question

Question 3 – 10 marks (Chapter 15)

Julstan Multi-Enterprise Limited (JML) is a Canadian-controlled private corporation. It has operated with a December 31 year-end. At its December 31, 2013 tax year-end, the balance in its capital dividend account was nil, with no negative amounts carried for future offset.

The following transactions occurred in the indicated taxation years thereafter:

                May 24, 2014:      sale of shares held in a public corporation for proceeds of $48,000; the shares had cost $72,000 and JML paid a sales commission of $2,000

                June 30, 2015:     acquisition of an unlimited-life franchise for $49,000

                August 20, 2016: received $25,000 as a dividend from the capital dividend account of a wholly owned subsidiary

                October 31, 2017: sold the following assets pertaining to the franchise

	Proceeds of Disposition	Original Cost	UCC	Selling Costs
Investments	$ 36,000	$47,000	n/a	$1,000
Land	40,000	26,000	n/a	2,000
Building	118,000	92,000	87,000	6,000
Equipment	12,000	17,000	10,500	Nil
Franchise rights	55,000	49,000	31,500	Nil
Goodwill	30,000	Nil	Nil	Nil

                June 9, 2018: received $100,000 from a life insurance policy on the life of a key employee; the corporation had paid total premiums of $19,000 on the policy

                July 22, 2019:elected to pay a dividend of $75,000 out of the capital dividend account

Required:

Compute the balance in JML’s capital dividend account at December 31, 2019 (Show all calculations)

Answer 1

Capital Dividend Account

This an account where the 50% of gains or losses proceeds from sale of capital assets is transfered and the same is distributed to the shareholders as dividends.

The following is the Capital dividend account of Jultans Multi-Enterprise Limited as of 31st December'2019:

1.The sale of share proceeds is loss as the proceeds were $48,000 and cost was $72,000/- which leads to a loss of $.24,000 of which 50% loss transfered to capital dividend account.

S.No	Date	Particulars	Proceeds from disposition	UCC	Original Cost	Selling Cost	Profit/ (Loss)	50 % of Proceeds to Capital Dividend Account
1	24th May 2014	Shares	48,000	-	72,000	2,000	-26,000	-13,000
2	30th June2015	Investments	36,000	-	47,000	1,000	-12,000	-6,000
3	31th Oct 2017	Land	40,000	-	26,000	2,000	12,000	6,000
4	Buildings	1,18,000	87,000	92,000	6,000	1,07,000	53,500
5	Equipment	12,000	10,500	17,000	-	5,500	2,750
6	Franchise	55,000	31,500	49,000	-	37,500	18,750
7	Goodwill	30,000	-	-	-	30,000	15,000
8	9th June 2018	Life Insurance Policy	1,00,000	-	19,000	-	81,000	40,500
GROSS TOTAL BALANCE IN CAPITAL DIVIDEND ACCOUNT	1,17,500
Add : Dividend from Subsidiary received on 26th Aug'2016	25000
NET TOTAL BALANCE IN CAPITAL DIVIDEND ACCOUNT	1,42,500
Less: Dividend to be paid on 22nd July 2019								-75000
BALANCE IN JML's CAPITAL DIVIDEND ACCOUNT AS ON 31st Dec'2019	67,500