The distinction between capital investment and current expenditure is somewhat arbitrary. Nevertheless, from the tax viewpoint, a
Question:
The distinction between capital investment and current expenditure is somewhat arbitrary. Nevertheless, from the tax viewpoint, a distinction must be made to calculate depreciation and its associated tax shield. The following link at Canada Revenue Agency provides a set of pointers to distinguish whether an expenditure is considered capital in nature, or whether it is a current expense.
cra-arc.gc.ca/E/pub/tp/it128r/it128r-e.html
Use the guidelines in the link above to classify the following expenses as capital or current:
a. Your company buys a fleet of trucks for material delivery
b. The local barbershop buys a new chair
c. The local barbershop buys a new pair of scissors
What assumptions did you need to make to answer the above questions?
Step by Step Answer:
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield