Final answer:
Upon the disposition of an asset, a terminal loss will be recognized since the undepreciated capital cost exceeds the proceeds of disposition and there are no assets remaining in the class.
Step-by-step explanation:
Upon the disposition of an asset where the business has claimed a Capital Cost Allowance (CCA) deduction of $10,000 and the market value has declined by $5,000, the correct event to be recognized is a terminal loss. A terminal loss occurs when the undepreciated capital cost (UCC) of an asset class is greater than the proceeds of disposition of the asset and there are no assets remaining in the class. Since the market value declined and assuming there are no new assets to be added to the class, the scenario suggests that after the CCA deduction, the UCC would exceed the proceeds of disposition, confirming a terminal loss.
In this case, CCA recapture does not occur because that would require the proceeds of disposition to be more than the UCC, resulting in having to 'recapture' or include some of the previously claimed CCA in income. Similarly, an additional CCA deduction would not be relevant here because the asset is being disposed of, not kept for further use. Lastly, a capital gain would be recognized if the proceeds of disposition exceeded the original cost of the asset, which does not apply in this scenario.