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Assignment 3

Net Income Before Provision for Income Tax 1,430,000

Adjustments
1. Sales Deposit
s.20(1)(m.i) allows a reserve if it is reasonably anticipated
to be delivered after the year end
Pre-tax Income 28,200
Adjustment (28,200) (28,200)
NIFTP 0

2. Removal of Valuable Inventory


Tax = GAAP No adjustments

3. Inventory Reserve
s.18(1)(e) does not allow reserves to be deducted until it is incurred
Pre-tax Income (23,000)
Adjustment 23,000 23,000
NIFTP 0

4. Warranty Program
s.18(1)(e) does not allow reserves to be deducted until it is incurred
Pre-tax Income 12,000
Adjustment (17,000) (17,000)
NIFTP (5,000)

5. Charitable Donations
Does not pass 3 rules test
Pre-tax Income (12,000)
Adjustment 12,000 12,000
NIFTP 0

6. Golf Membership & M/E


s.18(1)(l) recreational membership is not deductible, half of meals
is deductible
Membership:Pre-tax Income (16,000)
Adjustment 16,000 16,000
NIFTP 0
Meals: Pre-tax Income (12,300)
Adjustment 6,150 6,150
NIFTP (6,150)

7. Management Bonus
s.78(4) bonuses paid after 180 days past year end are deductible in
year paid (the $27,000 from last year is realized this year)

Pre-tax Income 0
Adjustment (27,000) (27,000)
NIFTP (27,000)

8. Holiday Banquet
Tax = GAAP No adjustments

9. Contingent Liability
s.18(1)(e) contingent liability is deductible in year costs are incurred
Pre-tax Income 17,000
Adjustment (35,000) (35,000)
NIFTP (18,000)
10. Mortgage
s.20(1)(e) expenses relating to borrowing money must be
expensed over 5 years
Pre-tax Income (7,000)
Adjustment 5,600 5,600
NIFTP (1,400)

11. Discount Bond


s.20(1)(f)(i) full deduction for "shallow discounts"
Discount of 2.5% < 3% limit
10%YTM < 14.6% (=4/3*11)
Pre-tax Income (7,000)
Adjustment (28,000) (28,000)
NIFTP (35,000)

12. Purchase of Shares


s.20(1)(e.1) immediate deduction for fees related to securities
Pre-tax Income (7,500)
Adjustment 0 0
NIFTP (7,500)

13. Penalties
s.18(1)(t) cannot deduct interest on ITA penalties
No adjustment is necessary since the interest is part of the tax provision

14. Insurance Premium


Passes 3 tests
Tax = GAAP no adjustments

15. Computer Software


Passes 3 tests
Tax = GAAP no adjustments

16. Depreciation
Pre-tax Income (66,000)
Adjustment 66,000 66,000
NIFTP 0

CCA
Class 3 8 10 10.1 (BMW) 13 43 10.1 (Ford)
Beg UCC 220,000 60,000 80,000 12,495 150,000 90,000 0
Additions 750,000 20,000 0 0 0 30,000
Dispositions 195,000 5,000 56,000 10,621 0 0 0
UCC 775,000 75,000 24,000 1,874 150,000 90,000 30,000
50% Rule 277,500 7,500 0 0 0 0 15,000
Reduced UCC 497,500 67,500 24,000 1,874 150,000 90,000 15,000
CCA Rate 5% 20% 30% 30% - 30% 30%
Recapture
Terminal Loss 24,000
CCA 24,875 13,500 0 1,874 29,200 27,000 4,500
End UCC 750,125 61,500 0 0 120,800 63,000 25,500

Leasehold Improvements
Year 2013 Lesser of: 225000/5 = 45,000
225000/(6+3) = 25,000

Year 2017 Lesser of: 21000/5 = 4,200


21000/(2+3) = 4,200

Total CCA 100,949

Minimum NIFTP for Eldridge Asset Sales Inc. 1,322,601

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