For the taxation year ending December 31, 2023, the income statement of Markham Ltd. was as follows:
Revenues $973,000
Expenses:
Cost of Goods Sold ($272,000)
Selling and Administrative Expenses (132,000)
Amortization Expense (156,000)
Other Expenses (137,000) (697,000)
Income before Income Tax Expense $276,000
Income Tax Expense:
Current ($ 97,000)
Future (32,000) (129,000)
2023 Net Accounting Income $147,000
Other Information:
1. The Company spent $6,000 during the year on landscaping for its new building. For accounting purposes, this was treated as an asset. The Company will not amortize this balance as it believes the work has an unlimited life.
2. Selling and Administrative expenses include $15,000 in business meals and entertainment.
3. Selling and Administrative expenses include membership fees for several employees in a local golf and country club. These fees total $3,400.
4. Other Expenses included donations to registered charities of $3,700.
5. Other Expenses included bond discount amortization of $2,500.
6. In 2023, Markham Ltd. purchased a competing business at a price that included goodwill of $70,000. For accounting purposes, there has been no impairment or write-down of the goodwill since its purchase.
7. As the Company expected to issue more shares in 2024, it made several amendments to its articles of incorporation in 2023. Legal expenses, included in Other Expenses, totaled $6,000.
8. On January 1, 2023, the Company had UCC balances for the following classes of depreciable property:
Class 1 $400,000
Class 8 575,000
Class 10 45,000
Class 13 68,000
The Class 1 balance related to a single building acquired in 2003 at a cost of $550,000. It was estimated that the value of the land at this time was $50,000 and the building $500,000. On February 1, 2023, the building was sold for $612,000. It was estimated that the value of the land was unchanged at $50,000 and that the value of the building was $562,000. For accounting purposes, the carrying value of the property was $507,000: $457,000 for the building and $50,000 for the land. The resulting gain on the building was included in the accounting revenues. The old building was replaced on February 15, 2023, with a new building acquired at a cost of $683,000, of which $60,000 was for the land and $623,000 for the building. The Company chose not to elect a separate Class 1 so it did not qualify for the 6% CCA rate. No elections were made with respect to the replacement of the building.
There were no dispositions of any Class 8 property in 2023 however there were purchases of Class 8 property of $126,000.
As the Company had decided to lease all of its vehicles in the future, all of the Class 10 properties were sold during the year. The capital cost of the properties sold was $93,000 and the sale proceeds were $37,000. The carrying value for accounting purposes was $52,000 and the resulting accounting loss of $15,000 ($37,000 – $52,000) was included in Other Expenses.
The Class 13 balance related to a single lease that commenced on January 1, 2021. The lease had an initial term of seven years, with two successive options to renew for three years each. Expenditures on this leasehold were $50,000 in 2021 and $27,000 in 2022. There were no further expenditures in 2023. The write-off of these expenditures for accounting purposes was included in Amortization Expense.
9. Other Expenses included interest on late income tax instalments of $500 and on late municipal tax payments of $275.
10. Markham Ltd. claimed the maximum CCA in each year.
Required: Determine Markham Ltd.’s 2023 net income. In addition, calculate the January 1, 2024 UCC for each CCA class. Ignore immediate expensing and any GST/HST and PST considerations.
