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Purchase Option: Capital Allowances and Tax Allowable Depreciation.
My question is that if you read the whole question completely, you understand that the machinery has a life of 4 years.
In the Purchase option Working: BPP has taken full depreciation for the year of ’02, I haven’t done tax ( f6) so I don’t clearly know the rules for Tax Allowable Depreciation on assests bought at the end of the year ( in this case on the last day of the year) I thought it was not right to give full depreciation for the year of ’02 so I started from ’03. And since it starts from ’02 it means that the asset is depreciated for 5 years in total, but it has a useful life of only 4 years. this is confusing me.
So Sir, Could you please tell me why they have depreciated the asset for 5 years.It depends when you buy the machine.
In UK tax, you get full depreciation in the accounting period in which you buy the machine.
So – if you buy on the last day of the accounting period, then they calculate the depreciation (in full) immediately, and you save tax on it whenever tax is normally due (either immediately or in one year – as per the question)
If you buy on the first day of an accounting period, then they calculate the depreciation (in full) at the end of the accounting period, which means an extra years delay.
Oh okay thank you Sir, that certainly cleared my head up and then i noticed a few more sums whcih did the same thing. Relief ! 😛
I had another doubt, could you please take a look at it here,
I wanted to ask one question, can I use the arithmetic growth rate instead of the Geometric Growth rate for calculating “g” with regards to Dividends ?
Because
1.) I don’t have a scientific calculator.
2.) I never used one ( scientific calculator) and I don’t really want to waste my time trying to learn how to use one.You should not use the arithmetic growth rate.
So far, every time it has been relevant in the exam there have been 4 years growth, and so the fourth root is just the square root twice (you don’t need a scientific calculator).
However, you will definitely need a scientific calculator for other exams!!
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