$(1)$ Problem $16$

RBL Proprietorship was heavily damaged during a recent street riot. The mobs broke in$,$ set fire to

the store, and physically assaulted the owner, Larry. Fortunately the business was insured, and the

owner received the following amounts without delay:

Personal injury damage award $................$ $ $$50,000$

Insurance receipts $-$ business interruption $.................80,000$

Insurance receipts for delivery truck destroyed $.........30,000$

Insurance receipts for leaseholds destroyed by fire $...15,000$

Total

The undepreciated capital cost in Class $10$ is $$15,000$ and in Class $13,$$$10,000.$ The original cost of

the truck was $$35,000$ and the original cost of the leaseholds was $$20,000.$

Larry does not understand why the damages are not treated as an expense for tax purposes. RBL

plans to replace the truck immediately. The damage to the leaseholds, however, presents a challenge

because the cost to repair the damage far exceeds the insurance compensation. RBL is considering

relocating its business to a safer location. The company will then be able to change its image to suit a

new clientele. The architect estimates that the leasehold improvements could be completed in

$12$ months. The total cost for the move would be as follows:

Moving costs

Total $......................................$ $$124,{400}_{{?}_{?}}$

Larry would like your advice on the tax implications of his plans.