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Hi Tutor,
How do we compute the writing down allowance for plant and machinery? 1st year 50%, thereafter 25%
The cost of the P&M was $16M.
So capital allowances in the first year are 50% x $16M = $8M
This leaves a reducing balance (written down value) of 16 – 8 = $8M.
So in the second year it is 25% x $8M = $2M.This leaves a reducing balance of 8 – 2 = $6M
So in the third year it is 25% x $6M = $1.5MThis leaves a reducing balance of 6 – 1.5 = $4.5M
In the final year it is sold for $4M, and so the balancing allowance is 4.5 – 4 = $0.5MI do suggest that you watch the free lectures (and maybe the relevant ones from F9) because dealing with tax (including capital allowances) is almost certain to be relevant somewhere in every exam!
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