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Hello,
As per kaplan notes it says that tax allowable depreciation is given for every year of ownership except the year of disposal. in the year of sale or scrap a ballancing allowance or ballancing chg arises
However while working a question im a bit confused..details are provided below
cost of machine-3million
lifetime of the asset-4 years after which it is expected to be sold at 400,000.00
tax allowable dep per year is 650Im confused because tax allowable dep has been charged in year 4 because as per the notes ‘tax allowable depreciation is given for every year of ownership except the year of disposal.’
Thank you
Grateful if you could help
What you have quoted from Kaplan is correct.
With regard to the question, I can’t really comment properly without seeing the whole question and the answer. (I don’t have Kaplan books – only BPP – but if it is a past exam question then tell me the name and the date of the exam and I will then be able to find it).
However, two general points might help.
One is that if there is a one-year delay in the payment of tax, then the allowance for year 3 will cause a tax effect at time 4.
The second is that if they have actually charged 650 in the 4th year and also a balancing charge or allowance in the 4th year, then the total of the two together will be the same figure as if they had done it properly (i.e there should be no 650, but as a result the correct balancing charge or allowance would be different).Hi John :), you are right the 650 in yr4 in fact relates to balancing allowance and i mistook it for tax allowable dep since the amount is same
Many Thanks 🙂
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