Can you explain how they got this answer? Consider a firm that has two assets in

Question

Can you explain how they got this answer? Consider a firm that has two assets in its Class 10 Asset Pool. The current UCC of this asset pool is $11,000. Asset 1 was purchased 4 years ago for $10,000, and Asset 2 was acquired 3 years ago also for $10,000. If the firm sells Asset 1 and 2 for $4,000 and $6,000, respectively, and the Class 10 Asset Pool is closed, what would be the firm's tax consequences? Assume a tax rate of 40%. a) The firm has to pay a capital gains tax. b) The sale of the two assets will result in a terminal loss and a final CCA tax shield of $400 c) Due to the sale of the two assets the firm will pay additional taxes of $400. d) There won't be any tax consequences when the pool is closed. e) The firm has under-depreciated the two assets and will need to pay taxes of $200. 8.

Explanation / Answer

ASSET 1 10000 4 YEARS ASSET 2 10000 3 YEARS 20000 WDV OF THE CLASS 11000 SALE PRICE RECEIVD 10000 LOSS ON SALE OF ASSETS 1000 TAX BENEFIT @ 40% 400

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