Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Q Inc. sold its warehouse for $1,000,000 (land $500,000; building $500,000) in t

ID: 2413551 • Letter: Q

Question

Q Inc. sold its warehouse for $1,000,000 (land $500,000; building $500,000) in the current year and purchased a larger warehouse for $3,000,000 (land $1,000,000; building $2,000,000). The original warehouse cost $600,000 (land $200,000; building $400,000) and was the only asset in Class 1 which had an undepreciated capital cost balance of $380,000 before the sale. Q Inc. elected to put the new warehouse into a separate Class 1 to take advantage of the 6% CCA rate. What is the minimum amount is to be reported in net income for tax purposes for the current year?

Explanation / Answer

Solution:-

Particulars

Land

Building

Total

Class 1

Sale of old Warehouse (1)

500000

500000

1000000

Cost of old Warehouse (2)

200000

400000

600000

Written down value of old Warehouse (given)- (3)

                 -  

                 -  

380000

Gain on Sale of warehouse (1-3)- (4)

620000

Class 2

Purchase of Warehouse

1000000

2000000

3000000

Depreciation @ 6% (5)

180000

Written down value of new Warehouse at end of year

2820000

Net Income (4-5)

440000

Therefore, Minimum amount to be reported as Net Income for tax purposes for current year is $ 4,40,000

Particulars

Land

Building

Total

Class 1

Sale of old Warehouse (1)

500000

500000

1000000

Cost of old Warehouse (2)

200000

400000

600000

Written down value of old Warehouse (given)- (3)

                 -  

                 -  

380000

Gain on Sale of warehouse (1-3)- (4)

620000

Class 2

Purchase of Warehouse

1000000

2000000

3000000

Depreciation @ 6% (5)

180000

Written down value of new Warehouse at end of year

2820000

Net Income (4-5)

440000