ADMS 4561 Course Website on

ADMS 4561 – Fall 2020
Assignment 1 Worth: 15% of course mark
Submission: Submit twice using the links at the top of the ADMS 4561 Course Website on
or before 11:00 pm Sunday, September 27, 2020.
1. once using the “Link for Assignment 1 Submission”
2. a second time using the “Turnitin Link for Assignment 1 Submission”
The links will only accept one pdf. You may not work in a group as this is an individual
assignment.
Format Instructions:
• The assignment can be completed in word or excel but must be converted to a pdf not
exceeding 5 pages.
• You must use sentences, proper grammar and spelling. Point form may be used, where
• appropriate.
• If you use excel, each sheet in the file must fit on one page and must be readable
(similar to excel exhibits we have posted for you on eClass).
• Page layout may be portrait or landscape.
• Your name, student #, section #, question # and the page # must be on each page.
Marks will be deducted if you fail to do this.
Late assignments will not be accepted and will receive a zero mark. Students who work in
groups will get a zero mark.
There are two questions to be completed. Make sure you read the questions carefully and do
the “requireds”.
Question #1- 15 marks
It is now September 18, 2020.
You, a CPA, work in the tax department of a public accounting firm and have been called into
the office of a senior partner, who is bringing you onto the engagement for a new client.

E&E is well known chocolate manufacturer located in Toronto, Ontario
owned entirely by Mrs. Green. E&E has a July 31st fiscal year-end and is
a Canadian controlled private corporation (“CCPC”). Mrs. Green is
divorced.
Historically, Mrs. Green focused primarily on the operations of the
business, and was never involved in the review of the financial
statements and tax returns, which were always prepared in-house by the
company’s controller. The controller was fired back in June 2020, and
Mrs. Green reached out to us for some clarification on the tax treatment
of a number of items relating to E&E as well as her personal income
taxes. An email from Mrs. Green can be found in Appendix I.
Please ensure that you address all of her queries by providing detailed
explanations. Prepare a memo to me addressing these tax issues and
provide recommendations, when appropriate. Ignore all COVID-19
extensions and relief programs.”
CPA: “No problem. When would you like these responses by?”
Senior Partner: “I would like it on my desk by Monday at 9 am. Enjoy your weekend!”
Appendix I- Email from Mrs. Green
Hi Senior Partner,
As discussed on the phone my team is frantically trying to understand the tax adjustments
required for the upcoming July 31, 2020 year-end. As you know we had to fire our controller at
a very inopportune time – right before our year-end!
What are the tax treatments for the following items expensed in E&E’s financial statements for
the July 31, 2020 year-end? Specifically, I would like to know what is deductible versus what is
non-deductible and why the tax treatment is such – I need to learn!
• E&E incurred $65,000 in legal fees, broken down as follows:
o Fees relating to the purchase of a new warehouse, $30,000.
o Fees relating to the issuance of new preference shares, $15,000.
o Fees relating to regular maintenance of the minute books and business queries,
$20,000.
• Severance in the amount of $80,000 was accrued at year-end. The amount was paid, in
full, to the past employee (the controller) on September 1, 2020.
• Salary of $5,000 paid to my son during the summer months while he worked in the new
chocolate warehouse. This salary is competitive with wages paid to other college
students working in the warehouse.
• Impairment on goodwill was recorded for accounting purposes in the amount of $25,000.
• We gave each of our employees branded t-shirts, pens and hats as their Christmas gift
back in December. Cost of these items amounted to $2,000 in total.
A few last questions. As you know, I receive a salary (which is T4’ed to me each year) and the
occasional dividend from E&E. This is my primary source of income. However, I do earn a
small amount of investment income from an investment portfolio I own. Since I own 100% of
E&E, I am considered self-employed, correct? I haven’t filed my 2019 tax return yet, but I
figured since my tax return is due June 15th (?), I won’t be too late. My estimated tax payable
for 2019 is $10,000. Oh, and I late filed my 2018 return as well – I can’t seem to get my returns
done in time! Can you give me an estimate of my outstanding liability for 2019, including any
penalties? Do I have to pay anything else in 2020?
Thanks for your help!
Mrs. Green
Question #2 – 15 marks
It is now later on September 18, 2020. You have just returned from your meeting with Senior
Partner. Now Francesca Vitello, the partner in charge of the Our Town Drug Mart Limited (“Our
Town”) engagement, has dropped into your office to ask some questions about CCA, and
express some concerns in respect of GST/HST compliance for Our Town’s December 31, 2020
taxation year. Our Town has been in business for a number of years, but is a new client to the
firm.
Francesca told you some basic background information on the company.
“Our Town is a CCPC 100% owned by Bill Harwood, a pharmacist, and is a retail
pharmacy. Our Town is located in Toronto, Ontario. I understand that gross revenue is
about $1.5M per year. Besides the prescriptions it fills and sells, it sells over-the-counter
(non-prescription) medications, vitamins and supplements, toiletries, household
products, cosmetics and other “beauty products”. It also has a “grocery” section of the
store that sells food products – milk, eggs, bread, canned goods (and similar items), as
well candy, cookies, chips, and pop. Think Shoppers Drug Mart and you will get the idea
of the store’s offering. By the way it also provides free delivery for prescriptions.”
Francesca went on to ask her CCA questions:
“Our Town has made some capital purchases 2020. With all the changes to the CCA
rules over the past couple of years, I want to make sure I am not misleading Bill when I
tell him how much he can write off for tax purposes. Our Town purchased some fancy
display cases for displaying high-end cosmetic and perfume gift sets to get ready for the
holiday gift season. They also bought a new computer printer for the dispensary as a
well as a hybrid car for making the deliveries. The car dealership told Bill that the car is a
“zero emission passenger vehicle”, whatever that is. Can you provide me with a
summary of which CCA class each of these items goes into and explain the maximum
amount of the purchase price Our Town will be able to write off this year as CCA? I
don’t have the dollar amounts of the purchases from Bill yet, but if you can give me an
explanation, I can take it from there.”
Francesca also discussed GST/HST.
“Our Town is a GST/HST registrant. Bill’s wife prepares and files the GST/HST returns.
As Our Town is a new client, I want to review their returns and make sure they are doing
them properly. I find that so many clients who prepare their own returns really don’t
understand what they are doing! It would be helpful to provide a summary of how the
revenue streams are categorized for GST/HST purposes and what that means for
GST/HST filings. Also, provide an explanation of how input tax credits should be
determined. I also want to know their options for methods of filing and filing frequency.”
On her way out the door Francesca said:
“Thanks. I would like a summary of this Monday please. A chart is fine.”
You are going to have a busy weekend!