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Hello, please tell me if the following is correct:
If a co. purchases an asset in year 0, with a life of 4 years then we calculate the dep up to year 4 and get a nbv which is then compared to the sales proceeds in year 5.
If a co. purchases an asset in year 1, with a life of 4 years the we calculate the dep up to year 3 and get a nbv which is then compared to the sales proceeds in year 4.
I am asking this because of doing the questions Leaminger (FMC 12/02) and Asop (12/09).
There is no such thing as year 0.
Time 0 is now – a point in time.
Time 1 is 1 year from now, time 2 is 2 years from now, and so on.If an asset is bought on the first day of an accounting period and sold 4 years later, then there will be 4 capital allowance calculations (the last one will be the balancing charge or allowance which is what you mean when you say compare the proceeds with the tax written down value).
If an asset is bought on the last day of the current accounting period, and sold 4 years later, then there will be 5 capital allowance calculations (because you get full capital allowance in the accounting period in which it is bought – a Paper F6 rule). Again, the last allowance is the balancing charge or allowance.
In most questions we assume the first (bought on the first day of an accounting period) and there is no problem.
It is only in lease and buy questions that the problem arises and it is likely to be the second.
It might help you to watch my free lectures on this.
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