CCA (Canadian Accounting)

If you are not running a business or not owning a business i.e.  you are a customer then what follows mostly academic! If you are running a business then leasing has several things to do with the choice of claiming CRA or Revenue Canada's version of depreciation (CCA) by not owning the equipment or owning the equipment but instead leasing it and claiming (for income tax purpose) the leasing rental as expenses that might be lower or higher that what you could claim (for income tax purpose) as Capital Cost Allowance. 

Depreciation vs. Cost Allowance:

Depreciation is the loss in the value of the tangible assets which is caused due to the wear and tear and time.  In accounting application assets such as vehicles, equipment etc, are posted on the books an as asset and cost is spent over its useful life. At times this is done in equal amount however more usually the percent used is based on the preceding remaining value. For instance, if equipment cost 200 dollars and the depreciation percentage was 30 percent, then the value after one year will be 140 dollars and the next years will be 140 of 30 percent is equal to 98 dollars.

Revenue Canada has the arbitrary depreciation schedule which is known as CCA (Capital Cost Allowance) that differs based on the kind of capital asset or equipment involved and whether it is the equipment’s first year of the possession or subsequent.

If you are leasing a capital asset for your company, your manager or account will evaluate for accounting purposes whether you have to just treat your lease rentals as expenses or whether you have to capitalize the asset (post it to the asset side of the balance sheet and at the same time record the lease as a loan).

Questionnaire:

• What is CCA?
• What is depreciation? Explain with an example?