FMT5 Problem: CEC - Greenwood Limited

FMT5 Problem: CEC - Greenwood Limited

On January 1, 2003, Greenwood Limited purchases another business. The purchase price

includes $100,000 with respect to goodwill. On January 1, 2003, the balance in the cumulative

eligible capital (CEC) account is nil. There are no further additions to the CEC account during

2004 or 2005. On February 1, 2005, Greenwood sells the business acquired in 2003 for

$550,000, including $250,000 in respect of goodwill.

Required:

a. Calculate the maximum deduction for CEC in each of the years and the income impact of

the sale in 2005.

b. Reconsider the facts outlined above. Calculate the income impact of the sale in 2006 if

the business acquired in 2003 is sold for $300,000 including an amount of $80,000 in

respect of goodwill.

c. How would your answer change if the business acquired was purchased on March 1,

2003 instead of January 1, 2003?