A17-4

Income 20x7: 120,000

Income 20x8: -70,000
1. Since future operations are highly uncertain, the loss might carry into the future, therefore
we must recover the losses from the earliest year, starting with 20x7 recoverable amount.
20x7 recoverable amount: 120,000x 40%= 48,000
Since 20x8 suffers a loss, it is not possible to recover tax loss, therefore recoverable
amount will be 48,000
2.
Income tax receivable 48,000
Income tax recovery 48,000
3. Income tax recovery on the SCI reflects the recovery of taxes paid in earlier year.
The tax loss is attributed to the discontinued operations (unsure about future operations),
recovery is applied to relevant parts of income on the income statement.
A17-8
 2015 2016 2017 2018
-
Actg earnings 150,00 230,00 310,00 460,00
before tax 0 0 0 0
Golf club dues 15,000 15,000 20,000 15,000
Depreciation
expense 45,000 45,000 45,000 45,000
CCA claimed 55,000 92,500 70,000
Warranty expense 25,000 41,000 57,000 29,000
Warranty costs
incurred 22,000 32,000 55,000 23,000
Tax rate 35% 37% 40% 40%
-
158,00 206,50 307,00 394,00
Taxable income 0 0 0 0

2015 2016 2017 2018

Application of loss 55300 76405 28400 160105
1. 2015:
 Income tax receivable 55,300
Income tax recovery 55,300
2016:
Income tax receivable 76,405
Income tax recovery 76,405
2017:
Income tax receivable 28,400
Income tax recovery 28,400
2018:
Income tax receivable 160,105
Income tax recovery 160,105
2.
2015 2016 2017 2018
Application of loss 0 32190 122800 154990
2016:
Income tax receivable 32,190
Income tax recovery 32,190
2017
Income tax receivable 122,800
Income tax recovery 122,800
2018:
Income tax receivable 154,990
Income tax recovery 154,990
3. Requirement 1
2015 2016 2017 2018
Application of loss 55300 76405 122800 254505
2015:
Income tax receivable 55,300
Income tax recovery 55,300
2016:
Income tax receivable 76,405
Income tax recovery 76,405
2017:
Income tax receivable 122,800
Income tax recovery 122,800
2018:
Income tax receivable 254,505
Income tax recovery 254,505

Requirement 2:
The income taxes stay the same
A17-13
 1. Tax loss in 20X5 is 192,000 (480,000 x 40%)
2. Depreciation is 27,000 (67,500 x 40%)
Eligible for a loss carry back. The benefit is reducing tax payable to zero for earlier years,
and refunded to the current year
3. Loss on depreciation is also eligible for loss carry forward, the benefit is allowing
taxpayers to use taxable loss in the current period and apply it to current year
4. The benefit relating to a tax loss arising in the current period that will be carried back to
recover income taxes of a previous period must be recognized as a current asset.
A17-35
Since the company is a growing business, their income is expected to rise in the future periods.
Therefore, their previous losses can be carried forward, reversing the losses for future periods.
The 10%customer share in the market for the upcoming year proved further the fact that they
will be more profitable.
Taking a look at the graph, it is clear that their income and industry growth rate is steadily
growing throughout the year
Because of such, they should not recognize a deferred tax asset.