Kinnetics Inc. purchased Class 8 (20% CCA Rate) equipment for $10,000 on July 23, 2014. Opening UCC for Class 8 in 2014 was $13,000. Kinnetics is subject to 40% taxation.

Ending UCC in 2014 is:

 

Answer:

Total tax benefit = $1,440.

Step-by-step explanation

The equipment was purchased on July 23, 2014. This date is in the middle of the year for which tax benefit will be claimed. Thus, the deduction can be claimed only for half of the amount of the purchase value.

The given purchase value of the equipment is $10,000.

Tax will only be deducted for half of the amount of the purchase that is, $5,000.

CCA (Capital Cost Allowance) rate = 20%

CCA in Canadian Business is an annual claim of depreciation expenses for capital assets under the income tax act.

Depreciation amount = The purchase value of the asset * CCA rate = $5,000*0.20 = $1,000.

Undepreciated capital cost (UCC) is the amount left after the CCA claim is deducted from the capital cost for further depreciation at any given time. The UCC of the equipment will be greater than the amount claimed through CCA.

UCC at the start of the year 2014 is $13,000.

The depreciation amount will be = $13,000*0.20 = $2,600

Total depreciation amount = Depreciation under CCA rate + depreciation under UCC rate

                                         = $1,000 + $2,600

                                         = $3,600

Tax benefit = Total depreciation amount*Tax rate = $3600*0.40 = $1,440.