In 2022, Maxwell Inc. paid $625,000 for equipment that is expected to have a 5-year life. In this industry, the residual value is estimated to be 5 percent of the asset’s cost. Maxwell Inc. plans to use straight-line amortization for accounting purposes. For income tax purposes, Maxwell chooses to use the maximum CCA rate of 20 percent. The office equipment is in class 8 and considered eligible for the accelerated investment incentive.

Required

1. Calculate the amortization expense in 2022 and 2023 for accounting and tax purposes. Use the half-year rule for tax purposes.

2. Why does the federal government regulate the amount of amortization a company can deduct when calculating income for income tax purposes?