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Dear Tutor
In example 4 of the capital allowances chapter, you added both the wdv b/f and the second hand car bought in that period, subtracted the disposal of plant asset, then cleared the difference using the balancing charge.
My question is, why didn’t we subtract the disposal before adding the asset? When I attempted it before the answer was displayed, I subtracted the proceeds from the wdv b/f, cleared off the remainder using the balancing charge, then calculated 18% on the addition of car.
In short, when doing a balancing charge, does this mean that the main pool will be totally cleared, as in we reduce it to a nil balance? I think I’m quite confused to be honest.
I appreciate your response in advance.
Additionally in example 5, why wasn’t aia deducted from the new machinery purchased before subtracting the disposal of assets? The aia for 3 months would have totally cleared off the asset. Or is this done this way because the business is ceasing to trade?
In computing the capital allowances, should we first add the new purchases to whatever balances brought forward, subtract any disposals, then if there is a positive remainder (assuming the company is going concern) we subtracted aia and wda where applicable then? I’d like to be clear on the format because I find with the addition of disposals and balancing adjustments I am getting confused.
In answer to your first question – WDA/BA/BC are always done after all additions and disposals have been added and deducted. Please follow the proceedure as shown in the recording/answers.
Second query – there is no FYA/WDA/AIA in the final capital allowances computation when a business ceases to trade – section 6.3 (c)
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