If the Asset Described in Above Question Had a CCA

question 105

Multiple Choice

If the asset described in above Question had a CCA rate of 30%, with the usual half-year rule, and were leased for 5 years, how would the lessee treat the five years of CCA? The lessee tax rate is 40%.The asset class uses declining balance.

• A)lessee would calculate the CCA amounts for each of the five years, apply the tax rate against these amounts, and show these amounts as cash outflows.
• B)lessee would calculate the CCA amounts for the entire life of the asset, and show those amounts as cash flows.
• C)lessee would ignore the CCA, since it is the lessor's financial province.
• D)lessee would treat the CCA calculations for each of the five years of the lease as cash inflows for the lessor.

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Definitions:

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