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Sir,
When we calculate accounting depreciation using the straight-line method we deduct the scrap value from the original cost. Do we use the same principle when calculating capital allowances on a straight-line basis?
In F6 capital allowances are on a reducing balance basis so I am not sure how we should deal with a straight-line basis.
Do we deduct the scrap value when calculating capital allowances on a straight-line basis?
Strictly, you should use straight line ignoring the scrap value (i.e. just on the original cost). The reason is that whatever we might assume for financial accounts, for tax purposes the tax authorities obviously have no idea what the scrap value will be.
Having said that, on the one or two occasions when there has been straight line in the exam, the examiner has accepted either – either ignoring the scrap value, or taking the scrap value into account. (I know that will result in different answers, but the markers mark you workings – not the final answer. Just make sure you write down what you have assumed 🙂 )
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