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Blades co wishes to evaluates a project which involves the purchase of a machine that costs $450000 . At the end of 3 years life its scrap value will be zero .corporation tax rate is 30% payable in same year the machine will attract 70% initial tax allowable depreciation allowance and the balance is to be written off evenly over the remainder of asset life and is allowable against tax. The firm is certain that it will earn sufficient profits against which to offset these allowances.
How to calculate capital allowances for above i cannot understand whether its straight line or reducing balance method ?The capital allowance in the first year is 70% x 450,000 = 315,000.
Because the question says that the balance is to be written off evenly, the remaining allowances are straight line on the 315,000.
(Although there has been straight line capital allowances in the exam in the past, it is very rare – almost always it is reducing balance (with a balancing charge or allowance in the year of sale) as is the case in Paper TX (was F6) and as we do in Paper FM (was Paper F9), as I explain in my free lectures.)
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