If the Asset Described in Question 57 Had a CCA

question 25

Multiple Choice

If the asset described in Question 57 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:

Producer Surplus

The discrepancy between the price at which producers are inclined to sell a product and the actual price they get, frequently viewed as an indicator of the well-being of producers.

Tax

A mandatory monetary fee or a different kind of tax placed on an individual or entity by a government agency.

Producer Surplus

The gap between the minimum amount that sellers are prepared to accept for a product or service and the higher price they actually get.

Consumer Surplus

The deviation between what consumers intend and are able to spend on a good or service compared to their final payment.