Practice Question

Not sure whether you have read the OT notes and watched the lectures?
Chapter 5, Section 7.1 (c) states how a balancing adjustment will arise on the disposal of a NON POOL asset.
Section 7.3 states the ONLY situations in which a balancing adjustment arises on either the MAIN or SPECIAL RATE POOL.

Firstly my apologies for not answering your question before now.

Look again at the precise words being used in my answer above and remember that taxation is a series of rules that must be followed – it is not a subject where for every rule we can ask “why is it the rule” – it quite simply IS the rule that the law makers decided upon, they could have chosen a different set of rules but they did not.

My first answer above states:

“Chapter 5, Section 7.1 (c) states how a balancing adjustment will arise on the disposal of a NON POOL asset.”

Therefore any asset that is kept in its own individual CA computation – either an asset with private use by the owner OR a short life asset will give rise to a balancing adjustment on sale and that computation is then completed and finished.

All other assets are kept in either the main pool or the special rate pool where no individual calculation is maintained of tax wdv for each asset and as stated in my original answer:

“Section 7.3 states the ONLY situations in which a balancing adjustment arises on either the MAIN or SPECIAL RATE POOL.”

The pools do not finish until cessation of trading when a final balancing adjustment will arise, but during the life of the business if asset sales in a period leave either pool with a negative balance, then that balance must be restored to zero at the end of the period by creating a balancing charge.

These are the rules