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In the disposal of Asset, some questions give the original acquisition cost and the disposal cost at that period. I dont understand the correct figure to be used. Is it the acquisition cost or the disposal cost and why?
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as tari said lower of the two amount will be taken. that is lower of the sales proceeds or original cost. ithink this is because to avoid the general pool from becoming negative and excess amount is charged under capital gains
Let me try to explain it.
Company A spend £10,000 on plant and machinery
year 1 – capital allowance is £1000
Year 2 – capital allowance is £900Year 3 – sale of asset.
Ideally the business has got the benefit of £1900 as capital allowance. As such Company A should only get benefit of £10,000 in total.
Case 1 – Sold at £12000
Since business should get only benefit of £10,000. As such benefit provided in the form of capital allowance i.e. £1,900 would be treated as balancing charge.
In other words. Company has put £10,000 in a pool so it can take out only £10,000
In this case we would consider cost of the asset.
Case 2 – sold at £7000
As mentioned earlier. A company should get benefit of £10,000
Company A has already got a benefit of £1,900 in the form of capital allowance.
Company has got amount of £7,000 as sales proceed. So they are losing £1,100 i.e. £10,000-£1,900-£7,000
This amount would be considered as Balancing allowance.
In this case we would consider sale proceeds.
Hope this helps.
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