Well explained, thank you. I know this a fairly old video but there is one thing I don't understand about the declining balance. It seems to me that you can't ever fully deduct the entire amount of the purchase if you do not dispose of the asset. If a company buys say a new $1K computer in class 45, they deduct 225 in the first year, 349 the second year, 192 the second, 105 the third, 58 the fourth, 32 in the fifth and so forth. It never goes to zero. Assuming this computer sits in a corner as a file server or something, for 10 years before it's recycled. At that point there's just a few bucks left of undeprecated capital cost. All this time it's been filling up the schedule 8. How to I get rid of the entry earlier without entering a disposal cost?
Excellent question! Your observation is 100% correct. But, there is a sensible explanation. Companies don't track individual assets, they just track the pooled total values of UCC and CCA for each asset Class. Every year, assets are purchased (or sold) that belong to a particular Class. The net increase in book value is added to that Class and the half-year rule is applied to the net amount to calculate the CCA for that year. It is interesting to note that if there is a net disposal in a given calendar year, the half-year rule is not actually applied to the new purchases. But more to your point, according to a declining balance approach it is true that value of a specific asset never goes to zero. But, it doesn't really matter since it is the total pooled value of all assets in a Class that matters for the calculation of UCC and CCA. Hope this makes sense!
Excellent question. The half-year rule is mandatory for CRA tax filing. A company is free keep a separate set of financial statements for management purposes. The type of depreciation rules used should always appear in the 'Notes' that accompany the financial statements. I had a finance professor years ago who said there was often more information in the 'Notes' than the numbers!
That's a great suggestion but Class 54 is a pretty obscure asset class, and the rules are more complicated. If you need help working through the calculations please let me know...but I can't justify making a video on it! Thanks for asking though. Glad you liked this video!
I came across a solved problem with respect to book value question and in the solution, UCC is used, not BV, hahaha the question is from a national exam in British Colombia:) Now it makes sense, so canada uses different terms eh.
Haven't seen such a great explanation to this topic..Thankyou for making this video
Glad it was helpful!
Well explained, thank you. I know this a fairly old video but there is one thing I don't understand about the declining balance. It seems to me that you can't ever fully deduct the entire amount of the purchase if you do not dispose of the asset. If a company buys say a new $1K computer in class 45, they deduct 225 in the first year, 349 the second year, 192 the second, 105 the third, 58 the fourth, 32 in the fifth and so forth. It never goes to zero. Assuming this computer sits in a corner as a file server or something, for 10 years before it's recycled. At that point there's just a few bucks left of undeprecated capital cost. All this time it's been filling up the schedule 8. How to I get rid of the entry earlier without entering a disposal cost?
Excellent question! Your observation is 100% correct. But, there is a sensible explanation. Companies don't track individual assets, they just track the pooled total values of UCC and CCA for each asset Class. Every year, assets are purchased (or sold) that belong to a particular Class. The net increase in book value is added to that Class and the half-year rule is applied to the net amount to calculate the CCA for that year. It is interesting to note that if there is a net disposal in a given calendar year, the half-year rule is not actually applied to the new purchases. But more to your point, according to a declining balance approach it is true that value of a specific asset never goes to zero. But, it doesn't really matter since it is the total pooled value of all assets in a Class that matters for the calculation of UCC and CCA. Hope this makes sense!
Is the half-year rule mandatory to book in the books, or is it just a CRA CCA rule and can only be applied for tax filing and not actual depreciation?
Excellent question. The half-year rule is mandatory for CRA tax filing. A company is free keep a separate set of financial statements for management purposes. The type of depreciation rules used should always appear in the 'Notes' that accompany the financial statements. I had a finance professor years ago who said there was often more information in the 'Notes' than the numbers!
so beautifully explained, thank you
You are most welcome!
You write well. You write right to left backwards well. I have considered it throughout the presentation and I am still considering it.
The video is 'mirrored' using software - so I'm actually writing normally.
great explanation. thank you. would appreciate if you do it for Class 54 vehicle in 2023
That's a great suggestion but Class 54 is a pretty obscure asset class, and the rules are more complicated. If you need help working through the calculations please let me know...but I can't justify making a video on it! Thanks for asking though. Glad you liked this video!
I came across a solved problem with respect to book value question and in the solution, UCC is used, not BV, hahaha the question is from a national exam in British Colombia:) Now it makes sense, so canada uses different terms eh.