Perfect Accruals Inc., purchased an asset five years ago for a cost of $950,000. The asset has a CCA rate of 30% . The company is selling this asset for 20% of its original cost. By what amount should the UCC in the asset class be reduced by, if the accelerated investment incentive method is used?

Perfect Accruals Inc., purchased an asset five years ago for a cost of $950,000. The asset has a CCA rate of 30% . The company is selling this asset for 20% of its original cost. By what amount should the UCC in the asset class be reduced by, if the accelerated investment incentive method is used?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 18E

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Perfect Accruals Inc., purchased an asset five years ago for a cost of $950,000. The asset has a CCA rate of
30% . The company is selling this asset for 20% of its original cost. By what amount should the UCC in the
asset class be reduced by, if the accelerated investment incentive method is used?

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