Chapter 5 Flashcards
What is an additions to a class ?
Additions to Cost Rule
Additions are generally recorded at their cost, which includes the invoice cost plus all costs incurred to have the asset delivered, installed, and ready for use. This amount is referred to as the capital cost.
What is available for use rule?
Available for Use Rule
This rule indicates that an asset can only be recorded as an addition, to the appropriate class, if the asset is “available for use.” This generally means that the asset is ready to be used for its intended purpose.
What is a disposition?
A disposition could occur when an asset is sold, traded in, or destroyed in an accident.
What is a CCA recapture?
If there is a negative or credit balance in a UCC class at the subtotal part after recording a disposition.
Essentially if opening UCC is < Dispositions and it equals a negative.
The recapture is shown as NIL in the ending UCC and ADDED to business income.
What is CCA terminal loss?
A terminal loss is when there is a positive in a CCA balance after a disposition.
It is DEDUCTED from business income
A depreciable capital asset is always recorded as ?
Lower cost of the asset disposed or proceeds received on the disposition of the asset
What happens when a class is positive and there are no more assets available for CCA?
This is considered a terminal loss, nothing else will be added to this class and this will be 100% deducted from income.
What keywords should you watch out for in questions?
Purchased = Additions
Sold = Proceeds
How do we calculate CCA in a class?
Starting CCA Balance + Additions + Lesser of CCA or Proceeds from dispositions (ACCL Adjustment if (Additions + Dispositions = net positive) = CCA BASE - (CCA BASE * Class percentage)
What happens when there is a net positive in a class and how is it calculated?
If we have a net positive (A), we will always do the ACCL Adjustment of 50% (B). Then we will add the net positive (A) number + ACCL Adjustment Number (B).
A * ACCL Adjustment (B)
A + B = C
Then we will multiply C with the class tax rate.
C * CCA rate = D Deduction
Than we will deduct the previous ACCL adjustment.
D + B = Total deduction
C - D + B = Answer
What happens when we are left with a negative subtotal for a class?
The negative subtotal is added back and is considered a recapture. This is added to income.
How does CCA work for Class 10.1 (Luxury Vehicles)
Any vehicle over 34,000. We use $34,000 as your additions. No dispositions, just deduct ACCL Adjustment and CCA percentage.
Each 10.1 vehicle must be in a separate class
There is no recapture or terminal loss
When is there a capital gain ?
You will have a capital gain when the proceeds are higher than the cost of the asset. This can be for building or Land.
