Question

A $95,000 investment is to be amortized for tax purposes using the maximum CCA available. a. If the investment represents a fleet of automobiles for a telephone utility, what will be the allowable CCA rate? CCA rate b-1. How much will the addition of the automobiles increase the allowable dollar CCA in Year 1? CCA in Year 1 $0 b-2. How much will the addition of the automobiles increase the allowable dollar CCA in Year 2? CCA in Year 2 $ c. If the investment had been for machinery, what difference would that have made in the CCA rate allowed? Difference 0 % d. What difference will it make when the cars are scrapped for next to nothing after five years? (The company's autostend to accumulate very high mileage, and the company has adopted the practice of giving them away to interested employees when their usefulness to the company ceases.) O Large effect little effest

Answer 1

Automobiles which are not treated as passenger vehicles are allowable up to maximum CCA of 30%

But during the first year, The CCA allowed is only 50% of the Max Allowable CCA

In the Given case the CCA allowed is 50% 0f 30% in the First Year

Hence CCA allowed is 15% (Answer to Question a)

B-1: Allowable CCA in year -1 due to addition in of automobiles in year-1

$95,000 X 30% X 50% = $ 14,250

B-2: Allowable CCA in year -2 due to addition in of automobiles

the CCA will be calculated on the Reducing Balance

CCA for Year 2 = ($95,000-$14250) X 30%

= $ 24,225

C: Difference in CCA rate if the investment was in Machinery instead of Automobiles :

0% as the CCA for investment in eligible machinery is also 30%

(Note: Answered 3 questions as required questions are not mentioned as HOMEWORKLIB Guidelines)

Thank You