Part 2: Preparing A Financial Plan – Depreciation

Depreciation

Depreciation is defined as the estimated amount of time a fixed asset decreases in value over the estimated useful life of the asset. Depreciation is computed annually, for tax and accounting purposes. There are different ways to calculate depreciation. Two widely used methods are 1) The straight line method and 2) The declining method (Capital cost allowance).

1) Straight line method

Annual Depreciation =
Asset cost – scrap or salvage value divided by
Estimated useful life in years

Example: If an asset such as a vehicle costs $25,000 and has a useful life of 5 years and a scrap or salvage value of $5,000, the yearly depreciation amount would be $4,000.

Type of assetsAsset costScrap or salvage valueAsset cost depreciationEstimated useful life in yearsYearly depreciation amount
Example
$25,000
($5,000)
$20,000
5 years
$4,000
Building     
Equipment     
Vehicle     
Leaseholds     
Furniture     
Other     
Total Yearly Depreciation Amount 

2) Declining method (Capital Cost Allowance)

The declining method of capital cost allowance (CCA) is Revenue Canada’s equivalent to depreciation. Revenu Canada establishes a set of precentages for different groups of assets. For tax purposes, only use one half the CCA rate in the first year of owning the assets.

Example: The CCA allowance for an automotive vehicle is currently 30% a year. Multiply the maximum rate allowed (30%) by the un-depreciated balance. Using the $25,000 vehicle example, calculate the capital cost allowance as follows:

YearValue at beginning of yearCCA rateCCA yearly amountValue at end of year
1
$25,000
30%
$7,500
$17,500
2
$17,500
30%
$5,250
$12,250
3
$12,250
30%
$3,675
$8,575

Use the CCA method to calculate your assets in the tables below.

Year 1
Type of asset
Value at beginning of year
CCA rate %
CCA yearly amount
Value at end of year
Building    
Equipment    
Vehicle    
Leasehold    
Furniture    
     
Total Year 1 Depreciation Amount$

Year 2
Type of asset
Value at beginning of year
CCA rate %
CCA yearly amount
Value at end of year
Building    
Equipment    
Vehicle    
Leasehold    
Furniture    
     
Total Year 2 Depreciation Amount$

Year 3
Type of asset
Value at beginning of year
CCA rate %
CCA yearly amount
Value at end of year
Building    
Equipment    
Vehicle    
Leasehold    
Furniture    
     
Total Year 3 Depreciation Amount$

Other income

Provide a detailed breakdown of other income and identify the source, such as SBA operating assitance, business support, and other assistance.

 
 
 
 
 

Tax rate

Income tax rates: Arbitrarily set a low rate of 25% on net income below $200,000 and a high rate of 50% on net operating income above $200,000. Rates can vary by state and province and within individual businesses as well. Consult your accountant.

 
 
 
 
 

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