Review

• Iona Flowers Inc. – What’s the amortization method??

10.2b Amortization IIRevising Amortization &

Expenditures During Useful Life

A Tax Note• CRA allows amortization expense deductions

when calculating taxable income using Capital Cost Allowance (CCA) (amortization for tax purposes)

• Half year rule: in year of acquisition ½ CCA rate can be deducted

• See Text Pg. 472

Class Capital Asset Group CCA Rate

Class 1 Buildings 4%

Class 8 Office Equipment 20%

Class 10 Automobile 30%

Revising Periodic Amortization

• Amortization is an estimation, may need adjusting if inaccurate

• Changes can be made for the current and future periods only (past was based on the best information available at the time)

Revised Amortization

Expense

Net Book Value at time of Revision

Revised Salvage

Value

Remaining Useful Life

Net Book Value at time of Revision

Revised Salvage

Value

Remaining Useful Life

Net Book Value at time of Revision

Revised Salvage

Value

Net Book Value (NBV)

• Net Book value is the difference between the cost of an asset and the accumulated amortization to date

NBV

Cost of Asset

Accumulated Amortization

NBV

Accumulated Amortization

NBV

PRACTICE: Iona Flowers

• Try Part B

Iona Flowers Inc.

• After the first year, Iona Flowers Inc. decides that the estimated revenue of $30,000 each year was an inaccurate estimate. As the business is growing it is hard to predict when business will pick up. Iona Flowers Inc. has decided to switch to a units of activity amortization method based on 20,000 deliveries in the reminder of the assets useful life.

Iona Flower’s Revised Amor’t

Amortizable cost

= 45,000 – 5,000 – 10,000 = $30,000

Amortizable cost per unit

= $30,000 = $1.50

20,000

If there were 5,432 deliveries in 2009 the amortization expense would be:

= $1.50 x 5,432 = $8,148

Expenditures During Useful Life

Operating Expenditures• Ordinary repairs are

costs to maintain the operating efficiency and expected life

• Expense as incurred (maintenance, repair expense)

Capital Expenditures• Additions and

improvements are costs incurred to increase the operating efficiency, productive capacity, or expected life of a capital asset

• Amortize over remaining useful life