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Final

RSM324H1 Lecture Notes - Lecture 3: Capital ExpenditureExam


Department
Rotman Commerce
Course Code
RSM324H1
Professor
Matthew Roman
Study Guide
Final

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RSM324 Tutorial 3 Oct. 1/19
Ch. 5: Business Income
[P5-5]
Required: Determine the amount by which the preceding items will reduce net income for tax
purposes of Mead Pipes Ltd. for 20X1.
Finder’s fee for mortgage on bldg.
6,000
(1,200)
Financing cost. Only 1/5 deductible per
year for 5 years. Add back and deduct 20%
Property taxes on company fishing
lodge used by employees
0
Denied not used to generate income.
Expenses for recreational facility
Interest for late pmt for municipal
property taxes for warehouse
(600)
Deductible. Property taxes are deductible
and so is the interest
Broker’s fee for purchase of shares
0
Capital in nature so expense is denied
Permanent landscaping
(4,800)
Deductible in year paid (cash-basis)
Site investigation for proposed
warehouse site rejected
(2,000)
Deductible in year paid (cash-basis)
Hockey tickets to entertain
customers
(900)
50% deductible
Reserves
0
No reserves are permitted with a few
exceptions
Total deductions: 9,500
[P5-6]
Required: Describe how each expense will be treated for tax purposes for the 20X0 taxation
year.
Purchase price of patent to
manufacture product
0
Capital in nature, so no deduction. Eligible for
CCA (Class 44)
Golf clubs dues to entertain
clients
0
No deduction. Expenses for dues to golf course,
yacht, camp lodge are all denied.
Reserve to cover 3% union
wage increase
0
No deduction. No reserves are permitted,with
few exceptions.
Legal fees against gov’t
payroll tax
(15,000)
Deductible. Expense of representation
Donations
0
Not deductible
Advertising in foreign
newspapers to Canadians
0
Not deductible. Adv. is in non-Canadian
newspaper directed at Canadian market
Travel costs to purchase new
machinery
0
Capital expenditure. Capitalized with cost of
machinery. Qualifies for CCA (Class 53)
Fees to prepare for new issue
of C/S
32,000
(6,400)
Financing cost. Deductible over 5 years since
expenses are related to a financing activity. Add
back and deduct 20%.
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