Question 1

If a foreign exchange gain or loss arises as a result of an income transaction:

	only one-half of the gain or loss is taxable or deductible.
	only the first $200 of the gain or loss is taxable or deductible.
	the gain or loss is fully taxable or deductible.
	none of the amount is taxable or deductible.

Question 2

LHS Products Ltd. (LHS) has been in operation for more than 20 years. Ten years ago, planning for future growth of its manufacturing facilities, LHS purchased a plot of land in an industrial area for $150,000. During the last couple of years, LHS has not met expectations. Business has fallen slightly and cash flows are tight. Due to the decrease in product demand, management does not believe that LHS will use this plot of land in the near future. As a result, during the taxation year ended March 31, 2016, LHS sold this land for $400,000. $150,000 was received in February, 2016, with the remainder to be paid in two equal instalments in February, 2017 and February, 2018. You have been advised that capital gains treatment is appropriate for this transaction.

LHS can claim a reserve on the above sale at March 31, 2016 of:

	$250,000
	Nil
	$156,250
	$200,000