Con-Glo Corporation has been involved in various food services businesses since its incorporation in 1999. Con-Glo has a December 31 year-end. You have been asked by the controller to examine the transactions involving various intangible assets due to an impending sale of the business. The controller wants to ensure that he understands the implications on the sale. You have been provided with the following information.
Shortly after the business was incorporated, Con-Glo purchased its first family restaurant. The purchase price included $43,000 for goodwill. After operating this business for a number of years and ensuring that it was profitable, another restaurant was purchased in 2005. The purchase again included goodwill in the amount of $68,000. The second restaurant had more of a roadhouse atmosphere. The business had obtained an unlimited life liquor licence. The value of the licence at the time of the purchase was $21,133, and this amount was allocated to the licence in the purchase agreement.
Con Glo operated the two restaurants until 2007 when it purchased a fast food franchise. The franchise was for an undefined number of years and cost $103,000.
The fast food restaurant, while successful, was too much of a drain on the time of the owners of Con Glo and was sold in 2009. The value of the franchise agreement was determined to be $110,000.
In 2010, it was determined that the original family restaurant would be more successful if it obtained a liquor licence. In order to obtain the licence a presentation had to be made to the liquor licensing board. Con-Glo paid $29,000 in legal fees related to the presentation to the board.
In 2011, the second restaurant was sold. Con-Glo received $80,000 for the goodwill and $60,000 for the liquor licence.
Due to health problems of the owner's wife, Con-Glo is also considering a sale of the balance of their restaurants in 2012. The selling price will include $250,000 for goodwill.
REQUIRED
Prepare a schedule calculating the balance of the cumulative eligible capital account as of January 1, 2013, and determine the impact of the above transactions on income for 2005 through 2012. Assume that the opening balance on January 1, 2005, was $20,865, the 1999 to 2004 CECA deductions were a total of $11,385, and that the company took the maximum tax write-offs that it was entitled to in each of the years 2005 to 2010. (Hint: consider paragraph 20(l)(cc).) Assume also that Con-Glo was deemed to be in the same business in respect of its restaurant and fast food business as per IT-206R.