In: Accounting
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 $48,000.
G.Accounting gains and losses on the above asset sales netted to nil.
Required:
Based on the foregoing information, Compute the income from business for tax purposes for Eldridge Asset Sales Inc. for its 2020 fiscal year.
Item # |
Description |
Amount |
Action(Add back/Deduct/No adjustment |
Amount for adjustment |
Reason for Adjustment |
ITA Reference |
State your assumptions if any information is not adequate for your calculation
item | Description | Amount ($) | 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 |