Calculate Capital Cost Allowance Before Tax Cash Flow and Income Tax Payable For a Business

Question

Belmont Plastic Ind. operates a production division in Calgary in a leased building. The division produces extruded plastic containers for the local bottling plant of Cotex Ind. Some of the financial information relating to the operation of the Calgary division of Belmont Plastic Ind. for the fiscal year ending on April 30, 2002 is given below. Belmont Plastic Ind. sells some of its production equipment (extrusion and packaging machines) during the fiscal year and replace it by new equipment.

Revenue                                                                                              $21,500,000

Labor                                                                                                    $5,800,000

Material and supplies                                                                              $4,000,000

Maintenance                                                                                          $1,100,000

Other costs                                                                                           $1,300,000

Loan payment (total)                                                                             $5,400,000

The interest portion of the (total) loan payment                                          $890,000

Lease payment (building)                                                                         $780,000

Equipment purchase during the year                                                       $3,500,000

Equipment sale during the year                                                                 $900,000

The book value of the equipment

at the beginning of the fiscal year                                                          $12,500,000

CCA (capital cost allowance) rate for the equipment 30%

Income tax rate 40%

Determine:

a) the equipment CCA (capital cost allowance) for the fiscal year (according to the Canadian Tax law) and its book value at the end of the fiscal year.

b) the before-tax cash flow

c) the income tax payable

d) the after-tax cash flow

Summary

The question belongs to Finance and it discusses about calculating the equipment capital cost allowance, the before tax cash flow, income tax payable and after tax cash flow for a business.

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