Canada UFE

(CONTINUED ON PAGE 2)

THE INSTITUTES OF CHARTERED ACCOUNTANTS OF CANADA

2011 Uniform Evaluation

PAPER II Time: 4 hours

NOTES TO CANDIDATES: (1) Simulations that require knowledge of the Income Tax Act, the Income Tax Application Rules 1971,

and the Income Tax Regulations are based on the laws enacted at March 31, 2011, or in accordance with the provisions proposed at March 31, 2011.

Provincial statutes, including those related to municipal matters, are not examinable.

(2) To help you budget your time during the evaluation, an estimate of the number of minutes required

for each simulation is shown at the beginning of the simulation. (3) Tables of present values, certain capital cost allowance rates, and selected tax information are

provided at the end of the evaluation paper as quick reference tools. These tables may be used in answering any simulation on the paper.

(4) Answers or parts of answers to simulations will not be evaluated if they are recorded on anything

other than the writing paper provided or the CICA-provided USB key. Rough notes will not be evaluated. You are asked to dispose of them rather than submit them with your response.

* * * * * * * * * * © 2011 The Canadian Institute of Chartered Accountants 277 Wellington Street West, Toronto, Ontario, Canada M5V 3H2 Printed in Canada

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2011 Uniform Evaluation Paper II Page 2


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SIMULATION 1 (90 minutes) It is early April 2011, and Christine Allison has recently hired you, CA, as accounting manager for her new company, Fitness Elitists Inc. (FEI). You have lunch together to discuss the venture, and she says, “As you know, I live and breathe fitness, and I am super excited about this opportunity. I’m buying a building from Fitness Freaks, which stopped operating a month ago. The building is well situated, so I’ll tear it down and build a prestigious new gym for Toronto’s wealthy. What I like about an elite gym is that the fee will be so high it will attract only those who are serious about fitness. Most of FEI’s members will likely be mid- to high-income earners. In general, 50% of new gym members quit within eight months, but I’m targeting people who are athletic or have reached a plateau and need expertise to push them to a new level. I’m convinced members will stay for five years in light of what FEI will offer. “FEI is going to be amazing: yoga studios, squash courts, a weight room with all the latest equipment, and even an outdoor track and trails around the property. We will also have the best personal trainers, massage therapists, physiotherapists, and nutritionists on staff. There will be tanning beds, a protein shake bar, and a store selling nutritional supplements and fitness supplies. “Members will pay a modest $5,000 annual membership fee. A non-refundable fee of $15,000 will also be due immediately, and will help cover the operating costs I’ll incur over the estimated five-year membership. The annual fee includes two hours of mandatory personal training each month, as well as 50 tokens that members can use to buy additional personal training time, services from our professionals, or tanning minutes. The tokens are good for 12 months. If members use all their tokens, they can purchase more services online or at the gym using cash or a credit card. More importantly, since FEI is committed to seeing its members succeed, each member receives a customized fitness plan designed by a personal trainer upon joining. If members stick to their plans for six months after joining but do not see the expected results, they will receive 100% of the annual membership fee back. But trust me, they’ll see results! I expect the refund rate to be as low as 10%. And, when members see great results, they’ll tell their friends and more people will join! I’m convinced that a reputation for obtaining results will make this business work. FEI will track the personalized plans through the fitness equipment, which will link to the IT system and to members’ accounts in the database. That way, the trainers will know whether members have done the workouts they’ve planned. I’ve provided more details (Exhibit III). “I’ve approached a bank and a venture capitalist for financing. The bank is offering a fixed rate loan and the venture capitalist is offering financing based on earnings, with an added equity component. Here’s the information on the financing options (Exhibit I). Both the bank and the venture capitalist require FEI’s financial statements to be presented in accordance with Accounting Standards for Private Enterprises (ASPE). I’m not sure which financing option is better, particularly since one of the options depends on earnings before interest and taxes (EBIT). Here are my estimated earnings for the first three years of business (Exhibit II). I had to build in some assumptions. For example, although not all members join at the beginning of the year, a vast majority do, so for my immediate purposes — that being the choice of financing — I assumed they all join January 1. I know estimating won’t work for the financial statements, though. Can you describe the policy choices I have when applying ASPE to FEI’s transactions?



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SIMULATION 1 (continued) “I need to figure out which financing option to go with right away. The owner of Fitness Freaks has already given me an extension. I want to keep him happy because I’m also buying his customer list for $100,000. If I wait too long, he may not offer me the same great price on the land and building. I also want to get the demolition and construction underway within a month so the gym is finished by the end of December and ready to open in January 2012. Those New Year’s resolutions are gold to the fitness business! “So, are you able to look at all this over the weekend?”



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SIMULATION 1 (continued)

EXHIBIT I

FITNESS ELITISTS INC. FINANCING OPTIONS

Option 1 — Bank Loan amount: $10 million Interest: The current prime rate of 5% plus 2% Terms: Interest is due annually. Principal is due at the end of three years. There is no pre-payment option. The loan is secured by land and building. An annual review engagement report is required on the financial statements, which are to be prepared in accordance with ASPE. It requires a personal guarantee of $2 million from Christine. Option 2 — Venture Capital Loan amount: $10 million Interest: Fixed rate of 5% during period of construction, then 10% of earnings before interest and taxes (EBIT) based on ASPE once open for business Terms: Interest is due two months after year end, along with audited financial statements. Principal is due at the end of three years unless a conversion option is exercised. At the end of the third year, the conversion option allows the venture capital firm to obtain 35% equity ownership in FEI in exchange for extinguishing the $10 million debt. The venture capital firm will provide additional management support and have a seat on the board of directors.



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EXHIBIT II

FITNESS ELITISTS INC. ESTIMATED EARNINGS

For the years ended December 31

Note 2012 2013 2014

Annual membership fees 1 $ 3,500,000 $ 6,000,000 $ 7,750,000 Non-refundable fee 1 10,500,000 7,500,000 5,250,000 Additional sales 2 350,000 600,000 775,000 Store sales 500,000 600,000 700,000 Refunds (350,000) (250,000) (175,000)

14,500,000 14,450,000 14,300,000

Advertising and promotion 3 1,000,000 750,000 750,000 Depreciation of capital assets 4 355,000 355,000 355,000 Gym equipment lease 5 500,000 500,000 500,000 Office and administrative 80,000 80,000 80,000 Supplies (office, cleaning, etc.) 20,000 20,000 20,000 Utilities 90,000 90,000 100,000 Wages and benefits 3,000,000 3,400,000 3,600,000

5,045,000 5,195,000 5,405,000

Earnings before interest and taxes

$ 9,455,000 $ 9,255,000 $ 8,895,000

Notes: 1. Based on the following assumption:

2012 700 new members 2013 500 new members 2014 350 new members

New members pay a non-refundable fee of $15,000. Annual membership fee is $5,000. 2. Assumed 50% of members will need to purchase additional services once their 50 tokens have been

used.

The following services can be purchased for $40 (or one token, which is worth $40): • 1 hour of nutrition consultation • 1 hour of physiotherapy • 30 minutes of personal training • 30 minutes of massage therapy • 100 minutes of tanning



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EXHIBIT II (continued)

FITNESS ELITISTS INC. ESTIMATED EARNINGS

For the years ended December 31 3. The amortization of the $100,000 customer list is done over five years, and is included in Advertising

and promotion. 4. Building depreciation is on a straight-line basis, over 30 years, on the following costs:

Materials $ 3,000,000Labour 2,000,000Legal fees 20,000Land transfer tax 180,000Demolition 200,000Land 4,500,000

$

9,900,000

Other equipment worth $125,000 is depreciated on a straight-line basis over five years and accounts for the balance of the depreciation.

5. I’ve just signed a five-year lease for state-of-the-art stationary fitness equipment. The leasing company

also sells the equipment. I’ve chosen the leasing option for now to see if I like the equipment and like dealing with this company. When it is time for renewal, though, I want to consider purchasing. Using the information that is currently available, can you give me some sense of which is the better of the two options? I want to keep my equipment new and on the leading edge of fitness technology.

Lease: $500,000 a year for five years; includes a maintenance fee, which the company also sells separately for $50,000 per year.

Buy: $1.7 million; the industry rule of thumb is that the equipment has little value after five years. However, I am confident I would be able to resell the equipment for at least $200,000.



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EXHIBIT III

INFORMATION ON MEMBERS DATABASE

Since I want to provide members with personalized service and the latest technology, FEI will have software that enables them to track their workouts, analyze their progress, and access the gym’s services. Individual accounts will be created when members join the gym. The software will interface with FEI’s professionals’ appointment books so members can schedule appointments. As they schedule appointments, their token balances will be reduced. To make it easy for members to purchase more services, their credit card information will be entered into the system so we can charge their accounts automatically. The software will also interface with the stationary fitness equipment, which has an application that tracks members’ workouts. Each machine has a touch screen; all a member has to do is type in their last name, and the equipment tracks the data for their session on the machine (for example, how long they run on the treadmill and at what speed; how much weight they lift and the number of repetitions). When members leave the machines, they touch “Done” on the screens to log out. The software allows the machines to display members’ workout histories if they want to see how long they ran or how much weight they lifted previously. The software keeps a record of personal information (age, resting heart rate, body fat percentage, etc.) and will calculate the amount of calories burned in a session. These measurements can be updated as the member progresses. Members can access all of this information through their accounts, both remotely through the Internet and on computer stations in the gym. They can also use the computer stations to access the Internet and check their email and social networking accounts or visit any site they choose to. If members perform workouts that are not done on a machine (free weights, push-ups, outdoor running), they can manually enter information about the workouts into their accounts. I see the tracking of this information mainly as a way to motivate members, allowing them to generate customized performance reports. Furthermore, FEI will use the information to assess whether a member who requests the 100% refund followed his or her personal trainer’s plan. A server will house both the members database and FEI’s financial information. Due to office space restrictions, it will have to be stored in the laundry room. Members do not have access to this area. I admit that, although I love the functionality and capabilities the IT system will provide, I’m not sure what security and controls FEI might need to implement.



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SIMULATION 2 (80 minutes)

The Garden and Landscaping Emporium (GLE) is a business based in Victoria that sells everything needed to beautify a home’s exterior space, such as plants, pots, sod, gravel, and stones. GLE also offers landscaping services. Sue and Paul Neil opened GLE in March 2010. There is no formal partnership agreement, but they each have 50% of the business. Sue operates the garden centre, which is mainly staffed by her. During peak hours, five students work part-time shifts. Paul runs the landscaping division with three full-time labourers. It is September 2011 and you, CA, a self-employed consultant, have just returned from your first meeting with the married couple. Details of your conversation with them can be found in Exhibit I. The business is the couple’s only source of income. Sue is concerned that 2011 is turning out to be much the same as the year before. She mentions that she filed a loss of $81,500 on her 2010 tax return, and hands you the only statement prepared for the business: a summary of the couple’s December 31, 2010 Statements of Business Activities that they included in their personal tax returns (Exhibit II). Sue and Paul want you to examine the summary to see if it makes sense and if they paid the correct amount of tax last year. Paul added, “When we started the business, we didn’t really think about what processes and controls were needed. But, after over a year of operations, we can see that things have gotten a little out of hand. Can you recommend controls that can be implemented to improve the running of our day-to-day operations? “Sue’s mother does the bookkeeping as a favour to us, using old accounting software. Both Sue and I are frustrated with the software because it doesn’t provide the information we need to manage the business properly. I have to resort to basing quotes for landscaping jobs on my instincts because I don’t have the history of costs by job from previous projects, and I don’t know whether I’m making money from one job to the next. In light of all this, I was pleasantly surprised to see that the landscaping division was quite profitable last year. But that doesn’t change the fact that we still don’t have the information we need to make decisions. As a result, we’re in the market for new software, and would like to know how it could help us assess GLE’s performance.”



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EXHIBIT I

DISCUSSION WITH SUE AND PAUL NEIL

Sue: “A typical day at the centre involves me coming in fairly early to water the plants and make sure everything is in order before opening for the day. Monday through Friday, the landscaping crew comes in around 7:00 a.m. Patrick and Jean each take a pickup truck home with them at night, so they drive to the garden centre in the morning and meet Henry and Paul. They check their schedules to see where they’re supposed to be, grab the supplies they need for the day, and head out in teams of two. The garden centre is also open on Saturday. “The landscaping crew is supposed to manually record what they’ve taken (soil, stones, flowers, etc.) on a tracking sheet in the garden centre, but the sheet never seems to be right. I’m pretty sure they sometimes forget to write down what they’ve taken. Or maybe they just mix up the types of plants, but it makes updating our inventory very difficult. To give you an idea, there was $35,000 worth of product tracked on that sheet last year, when really they took close to $60,000 worth. “I sometimes wonder if the crew always knows what kinds of plants they’re taking. I have some pretty expensive plants in the garden centre. I’m scared they might just take one for a landscaping job because it looks pretty, without the cost of the plant ever being worked into the price of the job. “The accuracy of the tracking sheet is also important because we offer a guarantee on the life of the plants we sell in the centre or plant during a landscaping job. We will replace any plant that dies within three months of its purchase. If a customer comes back and says a tree we planted during a landscaping job has died, but we have no record of it, how can we validate their claim? “I’ve often run out of a product in the garden centre because I didn’t realize it was time to reorder until it was too late. Running out of a product means lost sales, upset customers, and sometimes delays in landscaping projects. I have no idea which plants are our best sellers because I can’t tell if I’m selling it, or the crew is taking it, or it just died and I’ve thrown it out. Mom uses the tracking sheet to update our inventory spreadsheet, so then that’s wrong too. But truthfully, we know our inventory spreadsheet is already wrong because the lone cash register only allows the sales staff to indicate the category of product sold, not the exact item. How is Mom supposed to keep the inventory spreadsheet up to date if she doesn’t know what was sold? “I think sometimes Mom forgets to update the spreadsheet for purchases she’s entered in the accounting system, because in the past I’ve accidentally ordered something that we’ve had lots of in stock. And the accounting software tells me nothing! Due to the nature and seasonality of most of the products in the garden centre, we don’t bother recording inventory at year end because most of it wouldn’t have any value. Any plants left over would be dead by the time spring rolls around. Mom just records all the purchases straight to cost of goods sold.”



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EXHIBIT I (continued)

DISCUSSION WITH SUE AND PAUL NEIL Paul: “Last year, the crew was still in the midst of a big $100,000 landscaping job at Christmas. We started in early December and didn’t finish until the end of February. As of December 31, one-third of the costs had been incurred. We always ask for half the money up front and then the rest when the job is done. We started this policy in the summer of 2010 since we needed cash to cover materials and some of the labour. Before, when we billed for everything at the end, we sometimes had trouble collecting the money, and on top of that we probably paid about $500 in bank charges for customers’ bounced cheques. Now we get half of the payment up front so we know right away if the customer will be able to pay.” Sue: “All the employees are paid by the hour. The landscaping crew members make about $20 per hour and work eight hours per day. The students who help me in the garden centre make about $10 per hour, and between the five of them they probably put in a total of about 60 hours per week. The students are supposed to keep track of their hours on timesheets and submit them to Mom for payment. I’m sure it’s by accident, but I’ve caught paycheques going out that are worth several hours more than the students have worked. I know Mom gets frustrated because she wants to get the paycheques out on time but she’s always chasing the employees down for their timesheets and fixing their mistakes. Plus, she has to manually calculate the payroll deductions. “We also pay the students a small commission on their sales. It’s a little perk we like to offer, although as GLE grows the amount we pay out is increasing. After each shift, the students submit a manual report of sales made during that shift. The commission amounts are typically paid every six months because it is time consuming to calculate. Mom has previously found errors in the calculations, most often because commission wasn’t adjusted when a customer returned an item.” Paul: “The other thing I would love to have better control over is the landscaping tools we use (shovels, wheelbarrows, etc.). Right now we supply them on an as-needed basis. However, I don’t know what is being used on each job and whether tools are being returned to the shop or left at the job site. I’d like to think that we aren’t wasting money replacing these items unnecessarily.”



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EXHIBIT II

SUMMARY OF SUE AND PAUL’S STATEMENTS OF BUSINESS ACTIVITIES — T1

2010 Personal Tax Returns

Amounts Reported by Sue

Amounts Reported by Paul

Garden Centre Note Landscaping Note

Sales $ 315,000 $ 300,000 1 Commissions (15,000) – Cost of goods sold (200,000) –

100,000 300,000 Expenses Bad debts $ 30,000 $ – Bookkeeping 15,000 – CCA — vehicles – 9,000 2 Gas, insurance, R&M – 13,000 3 Office 4,000 4 – Rent and utilities 50,000 – Wages 82,500 5 49,500 5 Total expenses 181,500 71,500

Net income (loss) $ (81,500)

$ 228,500

Notes: 1. Includes $50,000 upfront payment received for December landscaping job. 2. Based on two pickup trucks at $40,000 each, in Class 10.1. 3. All vehicle expenses are paid by the company. 4. Includes bank charges and interest. 5. Total wages of $132,000 are allocated between divisions based on number of employees in each

division out of total of eight employees. Sue indicated that her mom was very proud that, when filing the T4s with CRA, her T4 summary amount for employment income plus employer remittances for Canada Pension Plan (CPP) and Employment Insurance (EI) reconciled perfectly to $132,000.



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SIMULATION 3 (70 minutes) It is June 13, 2011. You, CA, have known Jane Smith for many years. She has asked you to meet with her parents to discuss the latest development at Boy and Girl Toys Inc. (BGT) — what Jane has described as an amazing turn of events. Sally and Orland, Jane’s parents, are in their mid-fifties and have jointly owned BGT since they took over the business from Sally’s father several years ago. At the meeting, Sally describes the opportunity that BGT is contemplating. “World Entertainment Ltd. (WEL) is an international toy distribution and retail business. It is a publicly traded company with its head office in Canada. WEL noticed the success we have been having locally with our newest product, NanoPets. They approached us with a non-negotiable proposal to expand our business by injecting some equity. WEL has made investments of this type before to help capitalize on sales trends in the retail market. Here is a copy of WEL’s proposal (Exhibit I). As you know, I am the fourth-generation owner of BGT. We are proud of our achievements, but this proposal could take us to a whole new level of business success.” You inquire, “Do you have some idea of the amount of growth this opportunity entails?” Sally provides a summary of the financial and production data agreed to as part of WEL’s proposed investment in BGT (Exhibit II). She comments, “We never thought we would run a business that produces five million toys annually. That’s ten times what we produce now! It’s incredibly exciting. We want to go ahead, but first we want to understand the tax implications of bringing in a new shareholder. We’ve provided you with some summary tax information on BGT (Exhibit III). Orland and I each own 12,500 common voting shares that we purchased from my father. At $60 per share, we would each receive $750,000 tax-free when we eventually sell and claim the capital gains exemption, like Dad did, but I’m sure there are other tax considerations.” You ask what concerns, if any, they have with WEL’s offer and proposed expansion. Sally answers, “Well, when the representative from WEL was here, he asked some questions about internal controls and budgeting and variance analysis. Currently, Jane does all the bookkeeping and handles all payments to suppliers and employees. She has never paid anyone late or had any trouble with suppliers. The external accountant comes in every year for two weeks and prepares BGT’s financial statements and the tax returns. We’ve never had a problem. We’ve always run our business on handshakes and trust, so we were a little taken aback by the WEL representative’s questions. We are sure that once WEL’s management sees us in action they’ll be fine with what we do and how we do it. Then again, BGT is not a multinational company like WEL, so maybe their questions are valid. Could you recommend the internal controls we’ll need if we accept the proposal? We will have to hire some new employees, as you can see from the proposal, and we may not be able to monitor everything. Jane has already mentioned that she will need some help in the office too. She has prepared some notes on our current situation and how she thinks it might change (Exhibit IV). “We would also like your observations, a kind of sober second thought, on the proposed business expansion, with an emphasis on any risks you see that we may not have identified or fully explored.” After the meeting, Jane walks you out. She comments, “I think Mom really wants to do this deal. I guess it could be a big opportunity and could make us rich. But I’m not sure this is the way Grandpa would have wanted it to go. BGT has been in the family forever. I was hoping Mom would realize that I have worked hard and stayed here through everything thinking I would be next in line. Anyway, I hope it all works out.”



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EXHIBIT I

PROPOSAL MADE BY WORLD ENTERTAINMENT LIMITED TO BOY AND GIRL TOYS INC.

WEL’s non-negotiable proposal includes investing up to $9 million over a two-year period to fund expansion of the NanoPets line of toys. • The initial investment of $1.8 million will be for 30,000 newly issued common voting shares of BGT

at a price of $60 per share. • WEL will have an option to purchase an additional 120,000 shares, at $60 per share, for $7.2 million. WEL will be authorized to appoint at least three seats on the board of directors of BGT, and the board of directors will have no more than five members in total. BGT will produce quarterly financial statements for WEL’s internal management purposes. Sally and Orland will be guaranteed their current positions and salaries at BGT for a period of one year from the initial investment by WEL. BGT agrees to hire a marketing vice-president within three months of accepting the proposal to handle customer relationships and marketing functions. BGT agrees to hire a distribution manager within three months of accepting the proposal to assist in distribution to customers.



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EXHIBIT II

BOY AND GIRL TOYS INC. FINANCIAL AND PRODUCTION DATA

BGT’s current production capacity is 500,000 toys annually. BGT started producing NanoPets in early March 2011, and has produced and sold 40,000 NanoPets in three months. With a $3 million expansion, BGT could increase production to two million toys annually. The expansion would be funded with $1.5 million from WEL and $1.5 million from BGT’s bank. WEL guarantees a minimum purchase of 50,000 NanoPets in calendar 2011 to sell in its corporate-owned retail stores. WEL is planning to expand the number of stores it owns in 2012, at which point the minimum guaranteed purchase amount will be increased. The purchase price to be paid by WEL will be at a discount of 5% from the lowest price offered by BGT to any competing customer. The first phase of expansion would be complete in September 2011, with NanoPets production gradually increasing by the end of September in time for the Christmas shopping season. If the 2011 sales are strong, additional expansion will occur beginning in January 2012, such that production capacity reaches five million toys by June 2012.



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EXHIBIT III

BOY AND GIRL TOYS INC. TAX INFORMATION

December 31, 2010 Fiscal Year End

Taxable income Taxes payable before credits (11%)

$ 450,000

49,500

Scientific research and experimental development: Investment tax credit for developing NanoPet technology

($200,000 × 35%)

70,000

Net federal tax refund

20,500

December 31, 2010 retained earnings

1,100,000

Dividend paid 2010 150,000

Capital loss carry-forward 30,000

May 31, 2011 (Five-Month Period)

Estimated taxable income $ 250,000 Estimated scientific research and experimental development:

Investment tax credit ($100,000 × 35%)

35,000

Estimated May 31, 2011 retained earnings 1,335,000 Anticipated dividend 70,000



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EXHIBIT IV

NOTES ON PROCESSES AND PROCEDURES (PREPARED BY JANE)

My mom is BGT’s president, and handles all the relationships with customers. My dad is the vice-president of production and is in charge of research, production, distribution, and employee and supplier relationships. I handle administrative duties, including performing basic bookkeeping functions and working with BGT’s external accountant, who produces BGT’s financial statements under a compilation engagement and prepares BGT’s tax return. All pricing decisions are made by my mom in consultation with my dad. My dad estimates the production costs based on his experience, and then my mom decides what a reasonable margin is based on her knowledge of the market and what customers are willing to pay. Most customer contracts are verbal. We have never had collection problems with any customer. The new marketing vice-president will take over pricing for all customers, including ensuring compliance with the agreement to provide a 5% price discount to WEL. The WEL representative wants the new marketing person to focus on maximizing our sales to use up our new production capacity. We pay our suppliers on receipt of invoice. My dad handles the negotiations with all major suppliers for production machinery and raw materials, and takes care of distribution to customers. We spend small amounts on office supplies and other overheads like insurance. We own our facilities. The new distribution manager will take on the function of shipping the toys to our customers. He or she will also be in charge of related functions, including receiving returns of damaged or unsold goods, processing change orders from customers, and leasing a new warehouse as we expand our markets. All hiring is currently done by my dad because he knows what skills are needed for production and research. He was Grandpa’s right-hand man before Grandpa passed the business on to my parents. He tells me when a new employee has been hired, and I make sure I collect the information needed for payroll, like Social Insurance Number, home address, etc. My dad determines pay rates based on experience and the market. If I give up some of the office duties, he may have to communicate with the new office staff on payroll matters. I think the new marketing vice-president and distribution manager will determine pay rates and hours of work for the employees working in their areas. The people at WEL want these two positions to be filled quickly because they think we need to move fast to take full advantage of the trendy product we have developed. My parents and I have signing authority over the bank accounts, so it only makes sense that the new hires would have that authority as well.



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EXHIBIT IV (continued)

NOTES ON PROCESSES AND PROCEDURES (PREPARED BY JANE)

Every year, after the external accountant has prepared the draft financial statements and tax returns, my mom and I meet to determine the amounts of wages and dividends we can afford to pay based on our financial results. My dad doesn’t attend the meetings where we go over the detailed financial data because he knows the numbers through his experience and personal involvement on the costing side. He prefers to spend his time on the factory floor. We have had several applications for administrative jobs, so I should have no problem finding someone to help in the office. I’m not sure we will need a full-time person, but it would be nice to be able to hand off some of the more routine tasks like invoicing, adding suppliers, making deposits, and writing cheques. I would then be able to focus on getting a better handle on how to use our software to produce and print reports like the ones the WEL representative was talking about.



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0.35

0.

33

7

0.87

0.

81

0.76

0.

71

0.67

0.

62

0.58

0.

55

0.51

0.

48

0.45

0.

43

0.40

0.

38

0.35

0.

33

0.31

0.

30

0.28

8

0.

85

0.79

0.

73

0.68

0.

63

0.58

0.

54

0.50

0.

47

0.43

0.

40

0.38

0.

35

0.33

0.

31

0.28

0.

27

0.25

0.

23

9

0.84

0.

77

0.70

0.

64

0.59

0.

54

0.50

0.

46

0.42

0.

39

0.36

0.

33

0.31

0.

28

0.26

0.

24

0.23

0.

21

0.19

10

0.

82

0.74

0.

68

0.61

0.

56

0.51

0.

46

0.42

0.

39

0.35

0.

32

0.29

0.

27

0.25

0.

23

0.21

0.

19

0.18

0.

16

11

0.

80

0.72

0.

65

0.58

0.

53

0.48

0.

43

0.39

0.

35

0.32

0.

29

0.26

0.

24

0.21

0.

20

0.18

0.

16

0.15

0.

13

12

0.79

0.

70

0.62

0.

56

0.50

0.

44

0.40

0.

36

0.32

0.

29

0.26

0.

23

0.21

0.

19

0.17

0.

15

0.14

0.

12

0.11

13

0.

77

0.68

0.

60

0.53

0.

47

0.41

0.

37

0.33

0.

29

0.26

0.

23

0.20

0.

18

0.16

0.

15

0.13

0.

12

0.10

0.

09

14

0.76

0.

66

0.58

0.

51

0.44

0.

39

0.34

0.

30

0.26

0.

23

0.20

0.

18

0.16

0.

14

0.13

0.

11

0.10

0.

09

0.08

15

0.

74

0.64

0.

56

0.48

0.

42

0.36

0.

32

0.27

0.

24

0.21

0.

18

0.16

0.

14

0.12

0.

11

0.09

0.

08

0.07

0.

06

16

0.

73

0.62

0.

53

0.46

0.

39

0.34

0.

29

0.25

0.

22

0.19

0.

16

0.14

0.

12

0.11

0.

09

0.08

0.

07

0.06

0.

05

17

0.71

0.

61

0.51

0.

44

0.37

0.

32

0.27

0.

23

0.20

0.

17

0.15

0.

13

0.11

0.

09

0.08

0.

07

0.06

0.

05

0.05

18

0.

70

0.59

0.

49

0.42

0.

35

0.30

0.

25

0.21

0.

18

0.15

0.

13

0.11

0.

09

0.08

0.

07

0.06

0.

05

0.04

0.

04

19

0.69

0.

57

0.47

0.

40

0.33

0.

28

0.23

0.

19

0.16

0.

14

0.12

0.

10

0.08

0.

07

0.06

0.

05

0.04

0.

04

0.03

20

0.

67

0.55

0.

46

0.38

0.

31

0.26

0.

21

0.18

0.

15

0.12

0.

10

0.09

0.

07

0.06

0.

05

0.04

0.

04

0.03

0.

03

21

0.

66

0.54

0.

44

0.36

0.

29

0.24

0.

20

0.16

0.

14

0.11

0.

09

0.08

0.

06

0.05

0.

04

0.04

0.

03

0.03

0.

02

22

0.65

0.

52

0.42

0.

34

0.28

0.

23

0.18

0.

15

0.12

0.

10

0.08

0.

07

0.06

0.

05

0.04

0.

03

0.03

0.

02

0.02

23

0.

63

0.51

0.

41

0.33

0.

26

0.21

0.

17

0.14

0.

11

0.09

0.

07

0.06

0.

05

0.04

0.

03

0.03

0.

02

0.02

0.

02

24

0.62

0.

49

0.39

0.

31

0.25

0.

20

0.16

0.

13

0.10

0.

08

0.07

0.

05

0.04

0.

03

0.03

0.

02

0.02

0.

02

0.01

25

0.

61

0.48

0.

38

0.30

0.

23

0.18

0.

15

0.12

0.

09

0.07

0.

06

0.05

0.

04

0.03

0.

02

0.02

0.

02

0.01

0.

01

TABLE I



II

PRE

SEN

T V

AL

UE

OF

AN

AN

NU

ITY

OF

$1 R

EC

EIV

ED

AT

TH

E E

ND

OF

EA

CH

PE

RIO

D

No.

of

P

erio

ds

Rece

ived

2%

3%

4%

5%

6%

7%

8%

9%

10

%

11%

12

%

13%

14

%

15%

16

%

17%

18

%

19%

20

%

1

0.

98

0.97

0

.96

0.9

5 0

.94

0.9

3 0.

93

0.92

0.

91

0.90

0.

89

0.8

8 0.

88

0.87

0.

86

0.85

0.

85

0.84

0.

83

2

1.9

4 1.

91

1.8

9 1

.86

1.8

3 1

.81

1.78

1.

76

1.74

1.

71

1.69

1

.67

1.65

1.

63

1.61

1.

59

1.57

1.

55

1.53

3

2

.88

2.83

2

.78

2.7

2 2

.67

2.6

2 2.

58

2.53

2.

49

2.44

2.

40

2.3

6 2.

32

2.28

2.

25

2.21

2.

17

2.14

2.

11

4

3.8

1 3

.72

3.6

3 3

.55

3.4

7 3

.39

3.31

3.

24

3.17

3.

10

3.04

2

.97

2.91

2.

85

2.80

2.

74

2.69

2.

64

2.59

5

4

.71

4.5

8 4

.45

4.3

3 4

.21

4.1

0 3.

99

3.89

3.

79

3.70

3.

60

3.5

2 3.

43

3.35

3.

27

3.20

3.

13

3.06

2.

99

6

5

.60

5.4

2 5

.24

5.0

8 4

.92

4.7

7 4.

62

4.49

4.

36

4.23

4.

11

4.0

0 3.

89

3.78

3.

68

3.59

3.

50

3.41

3.

33

7

6.4

7 6

.23

6.0

0 5

.79

5.5

8 5

.39

5.21

5.

03

4.87

4.

71

4.56

4

.42

4.29

4.

16

4.04

3.

92

3.81

3.

71

3.60

8

7

.33

7.0

2 6

.73

6.4

6 6

.21

5.9

7 5.

75

5.53

5.

33

5.15

4.

97

4.8

0 4.

64

4.49

4.

34

4.21

4.

08

3.95

3.

84

9

8.1

6 7

.79

7.4

4 7

.11

6.8

0 6

.52

6.25

6.

00

5.76

5.

54

5.33

5

.13

4.95

4.

77

4.61

4.

45

4.30

4.

16

4.03

10

8

.98

8.5

3 8

.11

7.7

2 7

.36

7.0

2 6.

71

6.42

6.

14

5.89

5.

65

5.4

3 5.

22

5.02

4.

83

4.66

4.

49

4.34

4.

19

11

9

.79

9.2

5 8

.76

8.3

1 7

.89

7.5

0 7.

14

6.81

6.

50

6.21

5.

94

5.6

9 5.

45

5.23

5.

03

4.84

4.

66

4.49

4.

33

12

10.5

8 9

.95

9.3

9 8

.86

8.3

8 7

.94

7.54

7.

16

6.81

6.

49

6.19

5

.92

5.66

5.

42

5.20

4.

99

4.79

4.

61

4.44

13

11

.35

10.6

3 9

.99

9.3

9 8

.85

8.3

6 7.

90

7.49

7.

10

6.75

6.

42

6.1

2 5.

84

5.58

5.

34

5.12

4.

91

4.71

4.

53

14

12.1

1 11

.30

10.5

6 9

.90

9.2

9 8

.75

8.24

7.

79

7.37

6.

98

6.63

6

.30

6.00

5.

72

5.47

5.

23

5.01

4.

80

4.61

15

12

.85

11.9

4 11

.12

10.3

8 9

.71

9.1

1 8.

56

8.06

7.

61

7.19

6.

81

6.4

6 6.

14

5.85

5.

58

5.32

5.

09

4.88

4.

68

16

13

.58

12.5

6 11

.65

10.8

4 10

.11

9.4

5 8.

85

8.31

7.

82

7.38

6.

97

6.6

0 6.

27

5.95

5.

67

5.41

5.

16

4.94

4.

73

17

14.2

9 13

.17

12.1

7 11

.27

10.4

8 9

.76

9.12

8.

54

8.02

7.

55

7.12

6

.73

6.37

6.

05

5.75

5.

47

5.22

4.

99

4.77

18

14

.99

13.7

5 12

.66

11.6

9 10

.83

10.0

6 9.

37

8.76

8.

20

7.70

7.

25

6.8

4 6.

47

6.13

5.

82

5.53

5.

27

5.03

4.

81

19

15.6

8 14

.32

13.1

3 12

.09

11.1

6 10

.34

9.60

8.

95

8.36

7.

84

7.37

6

.94

6.55

6.

20

5.88

5.

58

5.32

5.

07

4.84

20

16

.35

14.8

8 13

.59

12.4

6 11

.47

10.5

9 9.

82

9.13

8.

51

7.96

7.

47

7.02

6.

62

6.26

5.

93

5.63

5.

35

5.10

4.

87

21

17

.01

15.4

2 14

.03

12.8

2 11

.76

10.8

4 10

.02

9.29

8.

65

8.08

7.

56

7.10

6.

69

6.31

5.

97

5.67

5.

38

5.13

4.

89

22

17.6

6 15

.94

14.4

5 13

.16

12.0

4 11

.06

10.2

0 9.

44

8.77

8.

18

7.65

7.

17

6.74

6.

36

6.01

5.

70

5.41

5.

15

4.91

23

18

.29

16.4

4 14

.86

13.4

9 12

.30

11.2

7 10

.37

9.58

8.

88

8.27

7.

72

7.23

6.

79

6.40

6.

04

5.72

5.

43

5.17

4.

93

24

18.9

1 16

.94

15.2

5 13

.80

12.5

5 11

.47

10.5

3 9.

71

8.99

8.

35

7.78

7.

28

6.84

6.

43

6.07

5.

75

5.45

5.

18

4.94

25

19

.52

17.4

1 15

.62

14.0

9 12

.78

11.6

5 10

.68

9.82

9.

08

8.42

7.

84

7.33

6.

87

6.46

6.

10

5.77

5.

47

5.20

4.

95

TABLE II


(CONCLUDED ON PAGE 21)

II

TABLE III

A FORMULA FOR CALCULATING THE PRESENT VALUE OF REDUCTIONS IN TAX PAYABLE DUE TO CAPITAL

COST ALLOWANCE

Investment

Cost

×

Marginal Rate of

Income Tax

×

Rate of Capital Cost Allowance

× (

1 +

Rate of Return

2 ) (

Rate of Return

+

Rate of CapitalCost Allowance )

× (

1 +

Rate of Return )

MAXIMUM CAPITAL COST ALLOWANCE RATES FOR SELECTED CLASSES

Class 1 ..................................................... 4% Class 8 ..................................................... 20% Class 10 ................................................... 30% Class 10.1 ................................................ 30% Class 12 ................................................... 100% Class 13 ................................................... Original lease period plus one

renewal period (minimum 5 years and maximum 40 years)

Class 14 ................................................... Length of life of property Class 17 ................................................... 8% Class 29.................................................... 50% straight-line Class 43 ................................................... 30% Class 44 ................................................... 25% Class 50 ................................................... 55% Class 52 ................................................... 100%

SELECTED PRESCRIBED AUTOMOBILE AMOUNTS

Maximum depreciable cost — Class 10.1 $30,000 + GST or HST Maximum monthly deductible lease cost $800 + GST or HST Maximum monthly deductible interest cost $300 Operating cost benefit — employee 24¢ per kilometre of personal use Non-taxable car allowance benefit limits - first 5,000 km 52¢ per kilometre - balance 46¢ per kilometre

* * * * * * * * * * *


II

TABLE IV

INDIVIDUAL FEDERAL INCOME TAX RATES

Taxable Income 2010 Tax Rate $40,970 or less 15%

$40,971 to $81,940 $6,145 + 22% on next $40,970 $81,941 to $127,020 $15,159 + 26% on next $45,080

$127,021 or more $26,880 + 29% on remainder

SELECTED NON-REFUNDABLE TAX CREDITS PERMITTED TO INDIVIDUALS

FOR PURPOSES OF COMPUTING INCOME TAX The 2011 tax credits are 15% of the following amounts: Basic personal amount $10,527 Spouse or common-law partner amount 10,527 Net income threshold for spouse or common-law partner amount NIL Child 2,131 Age 65 or over in the year 6,537 Canada employment amount up to $1,065 Disability amount 7,341 Infirm dependants who reach 18 in the year 4,282 Net income threshold for infirm dependants 18 and over 6,076 Basic amount for:

Age credit and GST credit 32,961 Child tax benefit 41,544

Children’s fitness credit up to $500 CORPORATE FEDERAL INCOME TAX RATE The tax payable by a corporation on its taxable income under Part I of the Income Tax Act is 38% before any additions and/or deductions. PRESCRIBED INTEREST RATES (base rates)

Year Jan. 1 - Mar. 31 Apr. 1 - June 30 July 1 - Sep. 30 Oct. 1 - Dec. 31

2011 2010 2009

1 1 2

11

1

11 1

1 1

2008 4 4 3 3 2007 5 5 5 5

This is the rate used for taxable benefits for employees and shareholders, low-interest loans, and other related-party transactions. The rate is 4 percentage points higher for late or deficient income tax payments and unremitted withholdings. The rate is 2 percentage points higher for tax refunds to taxpayers with the exception of corporations, for which the base rate is used.

(THIS PAGE INTENTIONALLY LEFT BLANK)




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