At the end of 2019, Johnson reported deferred income tax on loss carried forward of $ 233,000 and deferred tax liability for 2019 as $ 72,000 vs 2018 for $ 96,000. The deferred income taxes have resulted primarily from temporary differences in the recognition of capital cost allowance (CCA) claimed in excess of depreciation recorded. Management is reasonably certain that the tax benefits of the tax losses carried forward can be realized by claiming less CCA than depreciation. It has therefore reduced the current years losses by recognizing the deferred income tax benefit. The average tax rate of the company is 30%. When filing its income tax return for the past five years, the company reported no taxable income as a result of claiming enough CCA to offset its net income. This year, no CCA has been claimed because of the significant loss. Depreciation is calculated at 20% declining balance

Appendix 1 - Draft Income Statement (Lee Ltd) Lee Ltd. Draft Income Statement For the year ended December 31, 2019 ($ 000) Sales Cost of goods sold Gross profit $ 100,000 50,000 $ 50,000 $ 6,000 2,000 28,000 $36,000 Expenses: Depreciation Pension Operating Net pretax income Income tax-estimate (30%) Net income $ 14,000 4,200 $ 9,800 Earnings Per Share ($ 9,800,000/2,000,000) = $ 4.90 Appendix 1 - Draft Income Statement (Lee Ltd) Lee Ltd. Draft Income Statement For the year ended December 31, 2019 ($ 000) Sales Cost of goods sold Gross profit $ 100,000 50,000 $ 50,000 $ 6,000 2,000 28,000 $36,000 Expenses: Depreciation Pension Operating Net pretax income Income tax-estimate (30%) Net income $ 14,000 4,200 $ 9,800 Earnings Per Share ($ 9,800,000/2,000,000) = $ 4.90