AP 8-14 (Involuntary Dispositions-No ITA 44(6) Election) On July 1, 2021, the manufacturing plant of Janchek...

Transcribed Image Text:

AP 8-14 (Involuntary Dispositions-No ITA 44(6) Election) On July 1, 2021, the manufacturing plant of Janchek Ltd. was expropriated by the provincial government to make way for a new expressway. It is the only building that Janchek Ltd. owns. The land on which the plant was situated was purchased for $88,000. The building, a class 1 property, was constructed at a capital cost of $290,000. The company's year end is December 31. On November 23, 2021, after extended negotiations between Janchek and the provincial government, the company agreed to and received compensation in the amount of $130,000 for the land and $430,000 for the building. On January 1, 2021, the UCC balance in class 1 was $248,000. On June 20, 2022, a replacement manufacturing plant was purchased for a total cost of $1,050,000. Of this amount, $210,000 was allocated to the land, with the remaining $840,000 allocated to the building. As this was not a new building, it did not qualify for the 10% CCA rate for non-residential buildings that are used for manufacturing and processing. Janchek Ltd. will make any available elections to reduce the income tax effects of the replacement of the expropriated property. Required: A. Determine the income tax consequences in 2021 that will result from the receipt of the expropriation compensation. B. Indicate the impact on the results in Part A if elections were made under ITA 44(1) to defer capital gains and ITA 13(4) to defer recapture. C. Determine the ACB of the land and the capital cost of the building as well as the UCC of the building as a result of the elections under ITA 13(4) and ITA 44(1). AP 8-14 (Involuntary Dispositions-No ITA 44(6) Election) On July 1, 2021, the manufacturing plant of Janchek Ltd. was expropriated by the provincial government to make way for a new expressway. It is the only building that Janchek Ltd. owns. The land on which the plant was situated was purchased for $88,000. The building, a class 1 property, was constructed at a capital cost of $290,000. The company's year end is December 31. On November 23, 2021, after extended negotiations between Janchek and the provincial government, the company agreed to and received compensation in the amount of $130,000 for the land and $430,000 for the building. On January 1, 2021, the UCC balance in class 1 was $248,000. On June 20, 2022, a replacement manufacturing plant was purchased for a total cost of $1,050,000. Of this amount, $210,000 was allocated to the land, with the remaining $840,000 allocated to the building. As this was not a new building, it did not qualify for the 10% CCA rate for non-residential buildings that are used for manufacturing and processing. Janchek Ltd. will make any available elections to reduce the income tax effects of the replacement of the expropriated property. Required: A. Determine the income tax consequences in 2021 that will result from the receipt of the expropriation compensation. B. Indicate the impact on the results in Part A if elections were made under ITA 44(1) to defer capital gains and ITA 13(4) to defer recapture. C. Determine the ACB of the land and the capital cost of the building as well as the UCC of the building as a result of the elections under ITA 13(4) and ITA 44(1).