AFM123 Lecture Notes - Lecture 5: Canada Revenue Agency, 6 Years, Capital Asset

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amaranthlizard249

26 Oct 2015

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM123

Professor

Peter Blake

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Document Summary

Tangible assets that will provide future economic benefits, will last for greater than 1 year, are held for use in production, administration or for rental purposes, and are not for sale in ordinary course of business. The basic test as to what costs get included or excluded is the following. Any reasonable expense that is incurred to bring an asset to its intended use gets included in the cost of that capital asset. For most companies, they want to add the cost to the asset - income gets affected over many years. If i want higher income, i want to add to the cost. Examples of costs that would be included in the cost of a capital asset (in addition to its invoice cost) are: delivery charges. 3: non-refundable sales taxes (recall gst is usually refundable) Asset additions capitalize and amortize over useful life. Do i get to put it on the b/s or the i/s.

Related Questions

Indicate whether the following statements are "True" or "False" regarding cost recovery for tax purposes.

a. Realty (real property) generally includes land and buildings permanently affixed to land

b. Personal use property is only personalty property (personal property) that is held for personal use rather than for use in a trade or business or an income-producing activity

c. Assets used in a trade or business or for the production of income are eligible for cost recovery if they are subject to wear and tear, decay or decline from natural causes, or obsolescence

d. The key date for the commencement of depreciation is the date an asset is purchased

e. The basis of cost recovery property is reduced by the cost recovery method allowed, and not less than the allowable amount

f. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, the property is treated as though it were disposed of at the midpoint of the quarter

g. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, no cost recovery deduction is allowed in the year of sale

h. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, one-quarter of the annual cost recovery deduction is allowed in the year of sale

grayclam130

CAPITAL ASSETS

PART A

Good Grocers Inc. (GGI) has decided to add a delivery service toits business. On January 1, 2015 it purchased a car to use todeliver customer orders for $42,000, sales taxes were $5,800, theyhad the car painted with the store logo for $1,000 and spent $750on the annual license fee. During the year they spent $3,000 on gasand $1,000 on maintenance costs. They expect to drive the car200,000 kilometres and have no residual value. In 2015 they drove25,000.

Required:
a. Calculate the cost of the asset to GGI. Provide brief supportfor all items included in the cost and the reason any costs are notincluded.
b. Record the depreciation expense for 2015 using the units ofactivity method.

PART B

Minnieâs Model Co. Purchased a piece of equipment which cost$68,900, has a $4,900 residual value, and an 8-year useful life onJanuary 1, 2015. The companyâs year-end is December 31st.

Required :Calculate the depreciation expense for 2015under:
a. Straight-line
b. Double-declining-balance

PART C

Seau Saddle Co. Purchased amachine on October 1, 2013 for $65,000. It has a $5,000 residualvalue and a 10-year useful life. On July 1, 2015 the machine issold for $52,000. The company uses straight-line depreciation andhad a December 31st year end.

Required: Prepare the journalentries for 2013 through 2015.

redsquirrel201

Produce a balance sheet for a company that distinguishes betweencurrent and non- current assets and liabilities.

Create a balance sheet from a trial balance.

Create a comparison of net income based on different methods ofinventory accounting.

Analyze a statement of cash flows and show where each line itemcan be found or

calculated from the other financial statements.

Prepare a full analysis of key financial ratios for a companyand state conclusions about

the financial strength of the company compared to industryratios.

PROJECT SUBMISSION PLAN

Project Part

Description/Requirements of Project Part

Evaluation Criteria

Title: Creating a Balance Sheet and Evaluating Inventory
You will be provided with financial information about a fictionalcompany. You will have to determine what information is relevantfor Project Parts 1 and 2.

Task 1: Create a balance sheet from a trial balance for a givenscenario. Make sure you classify the accounts appropriately ascurrent or non-current. Click here to download the trialbalance.

Page 1

AC1420: Project

Project Part

Description/Requirements of Project Part

Evaluation Criteria

Task 2: Perform inventory valuations using LIFO, FIFO, andweighted average methods based on the following information.Explain the impact of each method on the cost of goods sold andending inventory.

The company imports microwaves from a supplier in China for theUS market. At the end of the first quarter, 100 microwaves are instock. The company purchased a total of 400 microwaves during thequarter at various prices: January: 100 units @ $75

February: 250 units @ $83
March: 50 units @ $87
The company had no inventory at the beginning of the quarter.
Task 3: If the companyâs goal is to maximize net income, whichevaluation method will you use and why?

Project Part 1 -Task 2:

Value of Ending Inventory of100 Units

Weighted AVG

LIFO

FIFO

Cost of Goods Sold (300 UnitsSold)

Weighted AVG

LIFO

FIFO

Create a BalanceSheet from the trial balance:
		Debits	Credits	Classification

	Cash	300,000.00		Current asset

	Sales		(10,000,000.00)	Income statement

	Cost of Goods Sold	7,000,000.00		Income statement

	Selling Expenses	500,000.00		Income statement

	Other income		(50,000.00)	Income statement

	Administrative expenses	350,000.00		Income statement

	Interest Expenses	12,500.00		Income statement

	Land	300,000.00		non-current asset

	Building	2,000,000.00		non-current asset

	Long Term bond payable		(550,000.00)	non-current liability

	Accrued Liabilities		(50,000.00)	current- liability

	Accumulated Depreciation Buildings		(250,000.00)	non-current asset

	Equipment	750,000.00		non-current asset

	Receivables	100,000.00		current asset

	Allowance for doubtful accounts		(7,500.00)	current asset

	Accumulated depreciation equipment		(125,000.00)	non-current asset

	Common Stock		(200,000.00)	equity

	Payables		(115,000.00)	current Liability

	Inventories	200,000.00		current asset

	Prepaid Expenses	50,000.00		current asset

	Retained Earnings		(215,000.00)	equity



		11,562,500.00	(11,562,500.00)

Assets		Equity and Liabilities

Current Assets		Current Liabilities





Total Current Assets	-	Total Current Liabilities	-




		Total long term Liabilities	-

Total property plant andequipment	-






		Total Equity	-


Total Assets	-	Total Equity and liabilities	-

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AFM123 Lecture Notes - Lecture 5: Canada Revenue Agency, 6 Years, Capital Asset

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