Question

In: Accounting

20.An examination of the capital cost allowance schedule for 2020 provided the following opening balances for...

20.An examination of the capital cost allowance schedule for 2020 provided the following opening balances for the undepreciated capital cost for each class of EASI's assets:

Class 1

Bbuilding...........................................................

$188,383

Class 8

Office furniture and equipment.....................

60,000

Class 10

Trucks for transportation of goods

80,000

Class 12

Ssmall tools.......................................................

5,000

Class 13

Lleasehold improvements...............................

187,500

Class 44

Patent and rights limited life..........................

90,000

The following additional information was found in the 2020 fixed asset schedules working paper files.

A. The building which cost $997,426 in 1992 was sold for $150,000. It was the only building in Class 1 at the time of its sale. A new building was purchased (non used) in April 2020 for $750,000. Also, in February 2020 a lot adjacent to the new building, was purchased for $100,000 for use as a parking lot by employees and visitors. This lot was paved at a cost of $25,000. A fence was erected around an outside storage area near the new building at a cost of $40,000.

B New office furniture was purchased for $20,000. This purchase replaced old assets which were sold for $5,000. None of the old assets was sold for more than capital cost.

C Three small trucks purchased in 2015 for $12,000 each were traded in for three new trucks. Each new truck was priced at $15,000, but this was reduced by a trade-in credit of $2,500 for each old truck.

D. Some small tools were sold for a total of $7,000. All of these tools were sold at a price less than their capital cost.

E. Leasehold improvements had been made to a leased warehouse at a cost of $225,000 in October 2018. The remaining length of the lease in that year was six years with two successive renewal options of three years each. Further leasehold improvements were made to this warehouse in 2020 at a cost of $21,000.

F.During 2020, an unlimited life franchise was purchased for $48,000.

G.Accounting gains and losses on the above asset sales netted to nil.

Required:

Based on the foregoing information, Compute the income from business for tax purposes for Eldridge Asset Sales Inc. for its 2020 fiscal year.

  1. Your answer should incude the following six column

Item #

Description

Amount

Action(Add back/Deduct/No adjustment

Amount for adjustment

Reason for Adjustment

ITA Reference

  1. Follow the sequence of information given above 1 to 20.
  2. Show all calculations whether or not they seem relevant to the final answer.
  3. Provde CCA calculation

State your assumptions if any information is not adequate for your calculation

Solutions

Expert Solution

item Description Amount ($) Action (add back/Deduct/no adjustment) Amount for adjustment ($) Reason for adjustment ITA reference
Bbuilding Class 1 188383 Deduct 188383 As the building was the only asset in class 1 and it is sold
Office furniture and equipment Class 8 60000 Deduct 40000 As the new furniture was purchased for $20000 and all old assets were sold thereby eleminating remaining $40000 from assets so that $20000 remains in the books
Trucks for transportation of goods class 10 80000 Deduct 36000 Three trucks costing $12000 each were replaced by three new trucks so 36000 were deducted from the undepreciated balance of assets
Ssmall tools Class 12 5000 No adjustment 0 As number of small tools sold less than their capital cost is not specified.
Lleasehold improvements Class 13 187500 Add back 21000 Leasehold improvements during 2020 was $21000 and book value shows $187500 which means leasehold has been amortised for 2019 for $37500(taking 6 years of life) from original cost of $225000
Patents and rights Class 44 90000 No adjustment 0 As the franchise was for unlimited life, it is not amortised rather tested for impairment hence not included for taxation purposes
Income from business
Book value Sale price (Loss)/Gain on sale
Building 188383 150000 -38383
Office furniture and equipment 40000 5000 -35000
Trucks 36000 43500 7500
198500 -65883

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