APSC 221 Midterm 2 Flashcards Question and answers rated A+ 2024/2025 APSC 221 Midterm 2 Flashcards
Taxes - correct answer - The most significant kind of tax of economic comparisons is income tax
- Income taxes provide governments a portion of net income received by an individual or corporat...
APSC 221 Midterm 2 Flashcards
Taxes - correct answer ✔- The most significant kind of tax of economic
comparisons is income tax
- Income taxes provide governments a portion of net income received by an
individual or corporation
- Income taxes are the main source of revenue for federal and provincial
governments and pay for social services, health services, infrastructure such
as highways and dams, the military and other government services
Personal Income Tax - correct answer ✔- Based on income less tax credits
- Tax rates are progressive (i.e the rate increases with income level and rates
can vary from between 25% to 50%)
Corporate Income Tax - correct answer ✔- Based on income less expenses
- Tax rates are flat and depend on the size of firm
- Small business deduction can reduce tax rate
Corporate Tax Rates - correct answer ✔- Corporate taxes have provincial
and federal components
- Rates can depend on factors such as what the corporation does, where it is
located, and how large it is
- Tax rates generally range from 17% to 52%
- Small business deductions apply to small companies and give tax credits to
provide higher after tax for reinvestment and expansion
- Tax rules change periodically
Before and After Tax MARR - correct answer ✔- Taxes can have a
significant impact on project evaluation, so they cannot be ignored
,- Taxes have the effect of reducing the profits of a project, hence we must set
the MARR high enough to recognize that taxes must be paid
- The MARR before tax must be set high enough to provide an acceptable
rate of return without explicitly considering taxes in cash flows
Capital Cost Allowance (CCA) System - correct answer ✔- A capital expense
occurs when a firm acquires a depreciable asset
- Over time the asset depreciates
o The depreciation is recognized by reducing the book value of the asset on
the firms balance sheet
o Depreciation is also recorded as an expense on the income statement,
reducing net income
- Depreciation reduces net income and thus taxes, but it is not an out of
pocket expense
- This leads firm to want to depreciate assets as quickly as possible
- To control the rate at which firm's depreciate assets, the Canadian
Government has set up rules which limit the amount of depreciation a firm can
claim in any one year
- The maximum level of capital expenses (depreciation) a firm can claim is
called its capital cost allowance
- The system established to allow firms to compute their CCA is called the
capital cost allowance system
- The CCA system requires that the declining balance method of depreciation
be used to claim capital costs
- The CCA system also specifies the maximum depreciation rate that can be
used. This is called the CCA rate
- To implement the CCA system, assets are grouped into CCA asset classes
- Each CCA asset class has a designated CCA rate assigned
, Undepreciated Capital Costs (UCC) - correct answer ✔- The basis for
calculating the CCA for assets in a particular class is the total undepreciated
capital cost for the assets in that class
- As an asset is used, the undepreciated portion of the original cost is tracked
through this UCC account
- Assets belonging to a particular class are pooled and kept track of as a
group, not individually
- The UCC does not represent market value; but the remaining value for the
purposes of computing capital cost allowances
- We will define two UCC terms for each year:
o The opening or UCC opening
o The ending or UCC ending
- The general approach for computing UCC balances each period (usually a
year) is as follows:
Half Year Rule - correct answer ✔- There is a complication in UCC
calculation due to the half year rule
- Assets purchased after November 1981 are subject to this rule
- The half year rule is as follows: Only half of the capital cost of acquiring an
asset can be claimed in the UCC for the first year. The remaining half is
claimed the following year
- This rule was created because many businesses would purchase assets at
the end of a year and only own them a short time but get to claim a full year's
CCA
- The half year rule changes our CCA calculation since half the depreciation of
any new asset purchases must be deferred by one year
- However, sales of assets must be accounted for in the year of disposal
- Therefore, for any given year, n:
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