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Hi John,
So in the Fubuki Qn, why aren’t we taking into account the 250,000 balancing allowance in the answer? The answer in the texts subtracts 650 for the four years and does not consider the 250,000 related to the balancing allowance. I hope you understand what I am trying to ask.The examiners answer does make a note about this immediately below his workings (1).
What he has done is calculated the TAD as being (3,000 – 400)/ 4 = 650 per year.
This results in the tax written down value after 4 years as 400, and so there is no balancing allowance or charge.Strictly this is wrong. The TAD each year should have been 3,000/5 = 750 per year. So after 3 years the tax written down value is 3,000 – (3 x 750) = 750. Therefore there is then a balancing allowance of 750 – 400 = 350 in the final year.
The examiners note does state this and writes that it would have got full marks.
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