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Exercise 4
The following balances were found in the various classes of depreciable assets on the books of
Wasting Assets Ltd., as at January 1, 2019:

Class 1 (see (1) below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000

Class 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Class 10 (truck for transportation of goods) . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Class 13 (see (2) below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Class 14 (see (3) below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,400

Additional information and transactions during 2019:

(1) The Class 1 undepreciated capital cost represents two buildings costing $100,000 each. One
building was sold for $150,000 during 2019.

(2) The Class 13 balance relates to a long-term lease on a warehouse for 30 years with an option to
renew for a further 20 years. The original cost of the leasehold improvements in 2003, when the lease
was entered into, was $50,000.

(3) Class 14 consists of a patent for 20 years costing $68,000 on January 1, 2015. (Ignore the effects
of the leap years in the period.)

(4) Purchases during the year:

Manufacturing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000

Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

—REQUIRED

Prepare a schedule showing the maximum capital cost allowance deductions for tax purposes in
2019.

Exercise 7
Mr. E. Presley has been operating an automobile repair business since 2005. The fiscal period of the
corporation ends on September 30. The business owns the following assets:

(a) A frame building used as a garage was acquired in 2009. The capital cost of the building in 2009
was $250,000. The UCC of this Class 1 asset was $208,985 as of the last year end. During the
current year, renovations were made to the garage in the amount of $20,000.

(b) A warehouse adjacent to the frame building was leased this year. The lease has a term of five
years with five options for renewal of five years each. The lease period commences April 15. The
cost of leasehold improvements was $70,000.

(c) Computer equipment was acquired on April 15, 2016. The UCC at October 1, 2018 is $40,000.
The equipment was used to perform analysis for repairs.

(d) Two trucks were acquired in a previous fiscal period. The UCC as of the last year end for these
Class 10 assets was $25,000. One of the trucks was sold this year for gross proceeds of $10,000.
The capital cost of the truck was $15,000. Selling costs incurred to sell the truck were $1,000.

(e) The rights to a licence to sell special racing car parts was purchased for $30,000. The licence is
valid for a period of 15 years commencing June 1 this year.

—REQUIRED

Compute CCA for Mr. Presley’s automobile repair business for the taxation year ended September
30, 2019. Ignore the leap year effects.

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Solutions:

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Solution 1: Purchase and Sale of Assets

Memorandum
Acme Inc.

To: Controller
From: Staff Accountant
Date: Month xx, Year xx
Subject: CCA Calculations and Adjustments

The following are the calculations and the identification of adjustments that you
requested.

Schedule 8 CCA Calculations:

Case
Class Rate Balance + - Balance CCA Recapture
Note
1 Single Building 1 6% $ 225,000 $ (250,000) $ (25,000) $ 25,000
8 Multiple assets 2 20% 30,000 (3,000) 27,000 5,400
10 Multiple assets 3 30% 20,000 6,000 (7,000) 19,000 5,700
10.1 Single auto 4 30% 13,000 0 13,000 1,950
$ 13,050 $ 25,000

Identification of Necessary Schedule 1 Adjustments:.

Add back:

 Amortization is added back

 Recapture is added
 Accounting loss on the sale of any asset is added back
 Taxable Capital Gains are added
Deduct:

 Capital Cost Allowance is deducted in place of amortization

 Accounting gains on the sale of any asset are deducted


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Add: Recapture on building $ 25,000
Accounting loss on Class 8 asset 600 $3,000 - $3,600
TCG on Class 10 asset 500 ($8,000 - $7,000) x 50%
Accounting amortization Outstanding
TCG if any on land Outstanding

Deduct: Accounting gain on building (70,000) $250,000 - $180,000

Accounting gain on Class 10 asset (2,500) $8,000 - $5,500
CCA (13,050)
Accounting gain if any on land Outstanding
Accounting loss on Cl. 10.1 asset 20,000

$ (39,450)

Review of Tax Effects Transactions and Identification of Missing Information:

During the year it had the following transactions:

1. Acme sold the building and moved into rented space. The company received proceeds of $250,000 for the
building which had an original cost of $275,000 and a net book value of $180,000.
a. Credit the lower of cost and proceeds to the class and add recapture of $25,000 (UCC less the
proceeds of disposition).
b. Deduct accounting gain of $70,000 ($250,000 - $180,000) to remove it from income for tax
purposes.
c. There must have been land sold as well so there is missing information. We would require the
proceeds of disposition and the original capital cost in order to calculate the tax implications of the
disposition.
2. Acme sold a class 8 asset for $3,000 which had an original cost of $6,500 and a net book value of $3,600.
a. Credit $3,000 to the pool and continue to claim CCA.
b. Add back the accounting loss of $600.

3. Acme bought a class 10 asset for $6,000. The company also sold a class 10 asset for $8,000 which had
an original cost of $7,000 and a net book value of $5,500.
a. Add $6,000 to the pool for the new asset purchased
b. Remove the lower of cost or proceeds (LCOP) of $7,000 from the pool. This leaves a balance of
$19,000 before CCA. The half-year rule does not apply, since there was not a net addition to the
class.
c. The class 10 asset was sold for proceeds greater than the original cost. There is a capital gain on
the sale of $1,000. Note that the capital gains are covered in Chapters 7 and 8, so the students
may not discuss this point yet.
d. Deduct the accounting gain of $2,500.
4. Acme sold the class 10.1 asset for $15,000 which had an original cost of $45,000 and a net book value of
$35,000.

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 a. There is no recapture [13(2)] or terminal loss [20(16.1)] on class 10.1. CCA can be claimed on the
opening balance for the year at ½ of the normal 30% rate in the year of disposition [1100(2.5)].
b. Add back the accounting loss of $20,000.
Missing Information

 Amortization
 Details on the sale of land

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