Tax Assessment Finally, Mr. Stark has one last request - he needs help understanding the tax consequences of disposal for an old piece of equipment. Prepare a CCA schedule for tax depreciation of a set of equipment purchased three years ago on January 1, 2015 for $270,000 (assume Class 46 with CCA rate of 30% and half-year rule applying). Calculate the tax consequence if all the equipment were to be sold at the beginning of this year (i.e., end of 2017) for either $90,000 or $120,000. The equipment is the only asset in the class. Utilize the average tax rate that Canada Hardware had in the last five years in your analysis of the tax impact Q6 Marks Student Equipment Disposal CCA Schedule 5 1 1 Calculation of Terminal Loss Sold 1 Calculation of Tax Savings 1 Interpretation of terminal loss 1 Calculation of Recaptured CCA 1 Calculation of Tax Savings 1 Interpretation of recapture Correct Tax Rate 1 37% UManitoba all 12:23 PM universityofmanitoba.desire2learn.com Tinancial statements Financial Statements Canada Hardware Statement of Financial Position (Balance Sheet) At Dec 31, 2017 in millions of dollars Assets Cash Accounts Receivable Inventory Total Current Assets 2013 $500 $2,000 $1,163 $3,663 2014 $430 $2,100 $2.500 $5,030 2015 $360 $2,100 $3,400 $5,860 2016 $290 $1,993 $4,800 $7,083 2017 $520 $2,000 $5,701 $8,221 Gross Property Plant & Equipment Less: Accumulated Depreciation Net Property, Plant, & Equipment Long-term Investments Total Long-Term Assets $5,000 -$2,000 $3,000 $1,000 $4,000 $5,741 -$2,400 $3,341 $1,000 $4,341 $6,500 $2,900 $3,600 $1,000 $4,600 $6,750 -$3.500 $3,250 $1,000 $4,250 $7,500 -$4,200 $3,300 $1,000 $4,300 Total Assets $7.663 $9,371 $10.460 $11.333 $12,521 Liabilities Account Payable Short-term Debt Current Liabilities Long-term Debt $1,875 $500 $2,375 2,000 $2,016 $500 $2,516 2,000 $2,019 $500 $2,519 2,000 $1,918 $500 $2,418 2,000 $2,172 $800 $2,972 2,000 Total Liabilities $4,375 $4,516 $4,519 $4,418 $4,972 Shareholder's Equity Common Shares Preferred Shares Retained Earnings Total Equity $1,000 $250 $2,038 $3,288 $1,000 $250 $3,605 $4,855 $1,000 $250 $4,691 $5,941 $1,000 $250 $5,665 $6,915 $1,000 $250 $6,299 $7,549 Liabilities & Shareholder's Equity $7.663 $9.371 $10.460 $11.333 $12.521 Canada Hardware Statement of Earnings (Income Statement) For the Year Ended Dec 31, 2017 In millions of dollars 2013 2014 2015 2016 2017 Revenue Hardware Segment Apparel Segment Sporting Goods Segment Total Revenue $5,780 $1,817 $700 $8,297 $5,916 $1,700 $900 $8,516 $6,346 $1,550 $1,100 $8,996 $6,352 $1,250 $1,350 $8,952 $6,373 $900 $1,300 $8,573 $4,174 $4,123 $4,144 $4,372 $4,370 $4,626 $4,297 $4,655 $3,772 $4,801 Cost of Goods Sold (COGS) Gross Profit Operating Expenses Advertising & Marketing General & Administrative Research, IT, & Development Depreciation & Amortization Total Operating Expenses $500 $750 $300 $300 $1,850 $500 $1,000 $300 $400 $2,200 $1,000 $1,200 $300 $500 $3,000 $1,000 $1,200 $300 $600 $3,100 $1,000 $1,200 $1,000 $700 $3,900 Operating Income Interest Expense Pre-tax Income Income Taxes Net Income (Net Profit) $2,273 $100 $2,173 $435 $2,172 $100 $2,072 $435 $1,637 $1,626 $100 $1,526 $370 $1.156 $1,555 $100 $1,455 $411 $1,044 $901 $100 $801 $97 $704 $1.738 Tax Assessment Finally, Mr. Stark has one last request - he needs help understanding the tax consequences of disposal for an old piece of equipment. Prepare a CCA schedule for tax depreciation of a set of equipment purchased three years ago on January 1, 2015 for $270,000 (assume Class 46 with CCA rate of 30% and half-year rule applying). Calculate the tax consequence if all the equipment were to be sold at the beginning of this year (i.e., end of 2017) for either $90,000 or $120,000. The equipment is the only asset in the class. Utilize the average tax rate that Canada Hardware had in the last five years in your analysis of the tax impact Q6 Marks Student Equipment Disposal CCA Schedule 5 1 1 Calculation of Terminal Loss Sold 1 Calculation of Tax Savings 1 Interpretation of terminal loss 1 Calculation of Recaptured CCA 1 Calculation of Tax Savings 1 Interpretation of recapture Correct Tax Rate 1 37% UManitoba all 12:23 PM universityofmanitoba.desire2learn.com Tinancial statements Financial Statements Canada Hardware Statement of Financial Position (Balance Sheet) At Dec 31, 2017 in millions of dollars Assets Cash Accounts Receivable Inventory Total Current Assets 2013 $500 $2,000 $1,163 $3,663 2014 $430 $2,100 $2.500 $5,030 2015 $360 $2,100 $3,400 $5,860 2016 $290 $1,993 $4,800 $7,083 2017 $520 $2,000 $5,701 $8,221 Gross Property Plant & Equipment Less: Accumulated Depreciation Net Property, Plant, & Equipment Long-term Investments Total Long-Term Assets $5,000 -$2,000 $3,000 $1,000 $4,000 $5,741 -$2,400 $3,341 $1,000 $4,341 $6,500 $2,900 $3,600 $1,000 $4,600 $6,750 -$3.500 $3,250 $1,000 $4,250 $7,500 -$4,200 $3,300 $1,000 $4,300 Total Assets $7.663 $9,371 $10.460 $11.333 $12,521 Liabilities Account Payable Short-term Debt Current Liabilities Long-term Debt $1,875 $500 $2,375 2,000 $2,016 $500 $2,516 2,000 $2,019 $500 $2,519 2,000 $1,918 $500 $2,418 2,000 $2,172 $800 $2,972 2,000 Total Liabilities $4,375 $4,516 $4,519 $4,418 $4,972 Shareholder's Equity Common Shares Preferred Shares Retained Earnings Total Equity $1,000 $250 $2,038 $3,288 $1,000 $250 $3,605 $4,855 $1,000 $250 $4,691 $5,941 $1,000 $250 $5,665 $6,915 $1,000 $250 $6,299 $7,549 Liabilities & Shareholder's Equity $7.663 $9.371 $10.460 $11.333 $12.521 Canada Hardware Statement of Earnings (Income Statement) For the Year Ended Dec 31, 2017 In millions of dollars 2013 2014 2015 2016 2017 Revenue Hardware Segment Apparel Segment Sporting Goods Segment Total Revenue $5,780 $1,817 $700 $8,297 $5,916 $1,700 $900 $8,516 $6,346 $1,550 $1,100 $8,996 $6,352 $1,250 $1,350 $8,952 $6,373 $900 $1,300 $8,573 $4,174 $4,123 $4,144 $4,372 $4,370 $4,626 $4,297 $4,655 $3,772 $4,801 Cost of Goods Sold (COGS) Gross Profit Operating Expenses Advertising & Marketing General & Administrative Research, IT, & Development Depreciation & Amortization Total Operating Expenses $500 $750 $300 $300 $1,850 $500 $1,000 $300 $400 $2,200 $1,000 $1,200 $300 $500 $3,000 $1,000 $1,200 $300 $600 $3,100 $1,000 $1,200 $1,000 $700 $3,900 Operating Income Interest Expense Pre-tax Income Income Taxes Net Income (Net Profit) $2,273 $100 $2,173 $435 $2,172 $100 $2,072 $435 $1,637 $1,626 $100 $1,526 $370 $1.156 $1,555 $100 $1,455 $411 $1,044 $901 $100 $801 $97 $704 $1.738