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Hi Mr Moffat.
Earlier in our archived thread. You mentioned that we don’t consider the scrap value ( forecasted disposal proceeds) in a slm method.
We simply take the full cost of an asset and divide by useful life
I just solved question by the name of Fubuki. In the answer solely related to depreciation charge.
The cost of machinery less scrap value over number of years. 650 came out to be the depreciation. Could you please guide why is this in contrast to your guidance.
Or am I missing something here.
I know this method of depreciation is unlikely to come but I can’t find peace until I don’t get this sorted out.
The examiner did indeed calculate the depreciation based on the cost less the residual value. However this is not the way tax depreciation should really be calculated, which is why the examiner has written a note in bold below the tax workings saying that “full credit will be given where the assumption is made that allowances are 750 in the first three years and 350 in the final year” (which is the correct tax rule).
I manage to get a hold of bpp kit since Kaplan kit didn’t state any examiner comment regarding the criteria.
Seems like both methods are permissible. Il go with the accounting method that we are accustomed to since day 1. Thank you for your insight
Yes – that is what I said before. For this question the examiner did allow either method.
However, I repeat that in most questions it will be reducing balance deprecation (in which case the sale value is of no relevant until the balance charge or allowance in the final year), and also when it is straight line depreciation then strictly again the sale proceeds should not be taken into account when calculating the depreciation charge.
Think back to Paper TX (was F6). It would be ludicrous if the tax authorities allowed you to take the estimated scrap proceeds into account when calculating the annual depreciation for tax purposes – companies would be making estimates just so as to get the tax liabilities that they wanted!! That is why we have the deferred tax calculations in the financial accounting papers – because the tax allowable depreciation is not the same as the depreciation charged in the financial accounts.
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