Part 2: Preparing A Financial Plan

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 assets Asset cost Scrap or salvage value Asset cost depreciation Estimated useful life in years Yearly 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:

Year Value at beginning of year CCA rate CCA yearly amount Value 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.

 
 
 
 
 

Continue to projected income statement template

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