Lecture Intermediate accounting (Volume 1, 11th Canadian edition) – Chapter Appendix 11: Depreciation, impairment, and disposition. After studying this chapter, you should be able to calculate capital cost allowance in routine and non-routine situations. | 1 1 CHAPTER 11: DEPRECIATION, IMPAIRMENT, and DISPOSITION 2 2 Chapter 11: Depreciation, Impairment, and Disposition After studying Appendix 11A, you should be able to: Calculate capital cost allowance in routine and non-routine situations. 3 3 Appendix 11A – Depreciation and Income Tax Canadian businesses use capital cost allowance (CCA) method to determine depreciation in calculating their taxable income and income tax value of their assets. 4 LO11 4 Appendix 11A – Depreciation and Income Tax Similar to the declining balance approach except for the following: Instead of being called Depreciation Expense, it is called “Capital Cost Allowance” The Income Tax Act specifies the rate to be used for an asset class. This rate is called the CCA rate. CCA is calculated separately for each asset class and can be claimed only on year-end amounts in each class The government, through the Income Tax Act, requires that any benefits that a company receives from government grants and investment tax credits for the purpose of acquiring a capital asset reduce the cost basis of the capital asset for tax purposes. CCA can be taken even if it results in a UCC balance that is less than the estimated residual value Companies are not required to take the maximum rate, or even any CCA, in a particular year, although they normally would as long as they have taxable income 5 LO11 5 Appendix 11A – Depreciation and Income Tax When an asset’s disposal eliminate the asset class, either because there are no more asses remaining in the class or because the disposal results in the elimination of the UCC balance of the class, the following may result: There may be a recapture of CCA, with or without a capital gain There may be a terminal loss, with or without a capital gain. 6 LO11 6 Appendix 11A – Depreciation and Income Tax 7 LO11 7 | 1 1 CHAPTER 11: DEPRECIATION, IMPAIRMENT, and DISPOSITION 2 2 Chapter 11: Depreciation, Impairment, and Disposition After studying Appendix 11A, you should be able to: Calculate capital cost allowance in routine and non-routine situations. 3 3 Appendix 11A – Depreciation and Income Tax Canadian businesses use capital cost allowance (CCA) method to determine depreciation in calculating their taxable income and income tax value of their assets. 4 LO11 4 Appendix 11A – Depreciation and Income Tax Similar to the declining balance approach except for the following: Instead of being called Depreciation Expense, it is called “Capital Cost Allowance” The Income Tax Act specifies the rate to be used for an asset class. This rate is called the CCA rate. CCA is calculated separately for each asset class and can be claimed only on year-end amounts in each class The government, through the Income Tax Act, requires that any benefits that a company receives from government grants and investment tax credits for the purpose of acquiring a capital asset reduce the cost basis of the capital asset for tax purposes. CCA can be taken even if it results in a UCC balance that is less than the estimated residual value Companies are not required to take the maximum rate, or even any CCA, in a particular year, although they normally would as long as they have taxable income 5 LO11 5 Appendix 11A – Depreciation and Income Tax When an asset’s disposal eliminate the asset class, either because there are no more asses remaining in the class or because the disposal results in the elimination of the UCC balance of the class, the following may result: There may be a recapture of CCA, with or without a capital gain There may be a terminal loss, with or without a capital gain. 6 LO11 6 Appendix 11A – Depreciation and Income Tax 7 LO11 7 8
