Simba Ltd. (the Company) has a fiscal year ending December 31. For the year ending December 31, 2021, the Companys income statement shows net income of $373,000. The information in the following notes has already been reflected in the above income statement.

The following amounts were deducted in computing accounting net income:

1. Provision for income taxes:
   1. Current: $75,500
   2. Future: $27,800
2. Increase in warranty reserve on companys product $8,700
3. Amortization expense recorded in the financial statements (The maximum

CCA for the year has been correctly determined to be $23,270.) $18,900

4. Landscaping expense paid in the year $2,935
5. Interest on bank loan obtained for the purpose of purchasing common

shares in Rainfall Inc., a dividend-paying Canadian corporation $6,300

6. Advertising costs for newspapers in the United States. The advertising was

primarily directed at the Canadian market $9,100

7. Legal and accounting fees related to issue of shares $35,000
8. Meals and entertainment for clients $5,600
9. Donation to United Way $3,200
10. Premium on term insurance on life of president with the corporation as

beneficiary; policy was not required to be assigned as collateral for

corporate borrowing from the bank $8,400

11. Management bonuses ($5,800 of this total bonus expensed in 2021,

and shown as Bonus Payable on the Balance Sheet as at December 31,

2021 has not been paid at the time of filing the corporate tax return on

June 30, 2022) $24,000

12. Fees to dispute an income tax assessment $8,500

The following item was included in the financial accounting statements in arriving at accounting net income:

• Amount received from an insurance company on its business interruption insurance to compensate for loss of profits when the company was closed down for a month during the year because of a fire: $56,500

REQUIRED

1. Based on the foregoing information, compute the net income (Division B income) for tax purposes, for Simba Ltd. in respect of its 2021 fiscal year. Show all of your work whether or not you feel it is relevant to your final answer. [13 Marks]

2. (i) Explain, in words, why each of the following items from Part A is deductible, or not, in calculating the Companys net income for tax purposes. You can use point form. [8 Marks]

• Amortization expense
• Interest on bank loan
• Advertising costs for newspapers
• Meals and entertainment
• Legal and accounting fees on issue of shares
• Donation to United Way
• Premium on term insurance
• $5,800 of unpaid management bonuses

(ii) Explain the income tax treatment of the warranty costs on the companys product. [2 Marks]