Capital Cost Allowance, Tax, and the Income Statement - Engineering Economics Lightboard
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- Опубликовано: 29 мар 2020
- Engineering Economics, Capital cost allowance, tax, and the income statement; depreciation expense; half-year rule; depreciation rate; undepreciated capital cost; UCC; after tax income; tax savings
your videos have been extremely helpful during this semester. I will have my final exam in 2 days. Thank you for your efforts
Glad I could help! Best of luck!! Thanks for taking the tine to send a comment. I appreciate it!
Understood everything. So basically as a business it’s better if I should be buying my bulldozer some where at the very end of the year let’s say in December, And get benefit of the first 30% amortization expense. And start generating the revenue from it in January. Thank for your help.
Thanks for the comment! Sounds like you got it!
Great video! I'm just still confused about CCA, mainly beteeen 5:12 to 5:27. Why do we get money back from buying something?
Good question. We don't actually get money back, we just have the right to claim a portion of the cost of buying the bulldozer each year as an expense. This 'expense' gets subtracted from our net income and therefore we pay less tax (since we have less profit). For BIG purchases, the total cost needs to be spread out over the 'life' of the asset - companies can't make a single huge expense claim! This would allow companies to greatly manipulate their income statements, and hence their taxes. In other videos, you will see that the Present Value of the total future tax savings by claiming the CCA expenses each year needs to be considered when making investment decisions - so you need to understand the concept well. Hope this helps!
The presentation is really helpful.
Why does the half year rule just apply for the first year?
Good question! Think of it this way; in the first year we don't know exactly 'when the company bought the equipment. Maybe it was February, maybe it was November. "On average" it is reasonable to assume that all equipment has actually been owned for only half of the year. I hope that makes sense!
Thank you a lot, your videos are really helpfull...
Should I consider a loan payement and interest on loan a part of the expenses ?
Good question, but the answer starts to enter a more complicated area of taxation! In general, yes, both the principal and interest would be legitimate expenses, however, in practice if a company is borrowing money specifically to purchase an asset, it might be better for the company to consider using either a capital lease or an operating lease. For the purpose of my course I just say "a company buys an asset", I don't worry about where they got the money, I just focus on how the company tracks the UCC (book value), and the CCA (depreciation). Your question is a good one but is probably too complicated for most engineering economics courses... ;).
0:20
Nice explanation sir but i will suggest you to speak little louder.
Thank you for the suggestion.