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Hi John
Im trying to understand how capital allowances were calculated in this question in year 4.
I the solution it has a value of $1,476,562* in year 4
*This figure includes the balancing allowanceI calculated it in the following way:
Y0 Investment $3,500,000
25% (875,000)
Y1 $2,625,000
25% (656,250)
Y2 $1,986,750
25% (492,188)
Y3 $1,494,562
25% (373,641)
Y4 B/A $1,120,922Can you please advice what im doing wrong?
Regards
MartaYour calculations are wrong!
Y1: 2625000 x 25% = 656250. This leaves a tax written down value of 2625000 – 656250 = 1968750 (not 1986750)
Y2: 25% x 1968750 = 492188. This leaves a tax written down value of 1968750 – 492188 = 1476562 (which is the same as the answer).
In the final year there is no 25% – just a balancing allowance or a balancing charge.
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