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Hi John,
Even if you don’t have this question, you’ll be able to help me, as my question is rather generic:
The question states that Machinery is depreciated at 25% on a reducing basis.
It’s not told whether it should be depreciated in the first year when there is NO production.
Thus, I’m forced to assumme.
Which of the following options is likely to be appreciated by marker:1) There is NO depreciation in the first year (investment phase) and thus the first depreciation charge occurs in year two. Is it valid?
2) Depreciation starts in year one, though it accumulates to be utilized in year 2 when production starts (examiner’s/BPP answer). Tis better?
Thank you in advance!
Although I think that your (1) is strictly the UK tax rule (although I am not certain because it is years since I used to teach tax), your (2) is the better assumption for the P4 exam.
However, as always, unless (obviously) the question specifies what to do, then the important thing to do is always to state your assumptions.
(And so often, the question specifically ask you to state your assumptions – especially when a report is required as part of the question)
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