As a result of the outsourcing, the XYZ Company auctioned off its production equipment (Class 43— CCA rate = 30%) for $320,000; and its fleet of trucks (Class 10—CCA rate = 30%) for $176,000. The cost basis of the equipment was $1,500,000, and the current UCC is $415,283. The cost basis of the

Question

As a result of the outsourcing, the XYZ Company auctioned off its production equipment [latex](Class 43— CCA rate = 30\%)[/latex] for [latex]\$320,000[/latex]; and its fleet of trucks [latex](Class 10—CCA rate = 30\%)[/latex] for [latex]\$176,000[/latex]. The cost basis of the equipment was [latex]\$1,500,000[/latex], and the current UCC is [latex]\$415,283[/latex]. The cost basis of the trucks was [latex]\$480,000,[/latex] and the current UCC is [latex]\$98,000[/latex]. If the company's marginal tax rate is [latex]31\%[/latex], what is the net salvage value of the equipment and vehicles?

Accepted Answer

Equipment DTE [latex]= t × (B_{d} - S)[/latex]
= [latex]31\% × (\$415,283 - \$320,000)[/latex]
= [latex]\$29,524[/latex]
NSV=S+DTE
=[latex] \$320,000 + \$29,524[/latex]
= [latex]\$349,524[/latex]

With the equipment there was a loss on disposal (asset sold for less than UCC), which resulted in a tax credit of [latex]\$38,113[/latex], so the actual net salvage value is greater than the selling price.

Trucks DTE [latex]= t × (B_{d} - S)[/latex]
= [latex]31\% × (\$98,000 - \$176,000)[/latex]
= [latex]-\$24,180[/latex]
NSV=S+DTE
= [latex]\$176,000 + (-\$24,180)[/latex]
= [latex]\$151,820[/latex]

Since the trucks sold for more than their book value, there was recaptured CCA and consequent tax liability. Thus the actual net salvage value is less than the selling price.

Question 12.6: As a result of the outsourcing, the XYZ Company auctioned of...

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