qns on June 2014 Q2

The cost of the P&M was $16M. So capital allowances in the first year are 50% x $16M = $8M This leaves a reducing balance (written down value) of 16 - 8 = $8M. So in the second year it is 25% x $8M = $2M. This leaves a reducing balance of 8 - 2 = $6M So in the third year it is 25% x $6M = $1.5M This leaves a reducing balance of 6 - 1.5 = $4.5M In the final year it is sold for $4M, and so the balancing allowance is 4.5 - 4 = $0.5M I do suggest that you watch the free lectures (and maybe the relevant ones from F9) because dealing with tax (including capital allowances) is almost certain to be relevant somewhere in every exam!