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Good Day Tutor,
In computing the capital allowance for a 15mth period, do I separate the period as follows – the first 3mths with AIA of 250000 (3/12 * 1000000) and 12mths with AIA of 1000000. Also do same for the relevant WDA’s?
or
Do I do the 15mths in one calculation and use for the AIA and WDA apportionment 15/12 * 1000000?
Your response is greatly appreciated.
It would appear from your question that you have not worked through the lectures or Study Notes for Chapter 17 where this issue is clearly dealt with, both in written notes and in an example – please refer
Good Day Tutor,
Thanks much for your reply. I have a question reference the answer to
practice question from the notes. Kindly direct me as to where this should be asked if not here please.Practice question 14 – GRACE
In calculation the capital allowance for the period 1May19-31July20, why did the practice answer apportion the AIA and WDA as 15/12.
AS OPPOSE TO
2 separate computations as follows:
– 1May19 – 30Apr20 (12mths AIA 1mil) giving a capital allowance of 73388
– 1May20 – 31Jul20 (3mths AIA 250000) giving a capital allowance of 797This is an important difference between income tax (IT) and corporation tax (CT)!
In CT we prepare a CT computation for an Accounting Period (AP) which cannot be more than 12 months and the capital allowance computations are then prepared for each AP as per Chapter 17.
In IT we prepare IT computations for tax years and in Chapter 6 we learned how to relate the profit periods of the unincorporated trader to the tax year in which that profit would be assessed. In deriving the profits for each such period we would take the accounting profit from the statement of profit or loss and adjust it for tax purposes according to the rules in Chapter 4 and prepare the capital allowance computations for those periods whether the periods be shorter or longer than 12 months according to the rules in Chapter 5.
Whenever dealing with a problem of either adjustment of profits or capital allowances FIRSTLY ensure you have read whether you are dealing with corporate tax or income tax!!
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