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the question says machinery was bought for 4 years but why have they depreciated it for 5 years??
bro question say after four years the company is expects a new technology to make the machine redundant but it will be sold in 2006 so 2002, 2003 , 2004, 2005, 2006 becomes 5 years.
But it was bought on dec 31st of 2002, so do we depreciate it for the whole year in that case ?
I haven’t done f6 yet, so I don’t know the provisions for tax on depreciation for Assests bought on the last day of the accounting year.
My point is how can we charge a full tax allowable depreciation for an asset which was used for only 1 day of the year ?
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the question clearly says: it will claim a capital allowance in the year of acquistion. so for 2002,03,04 05, 4 years of capital allowance ,and last year will claim a balancing allowance, tht is total 5 years.
Can you please advise why is in this case annual depreciation calculated from the purchase price (360,000) and not from purchase price less scrap value (340,000)?
Sorry, I found out the answer on the previous question.
I have another question on this one. The exercise says: “Tax allowable depreciation is available on the cost of the machine at the rate of 25% per annum reducing balance. A full years allowance is given in the year of acquisition but NO TAX ALLOWABLE DEPRECIATION IS AVAILABLE IN THE YEAR OF DISPOSAL. The difference between the proceeds and the tax written down value in the year of disposal is allowable or chargeable for tax as appropriate.”
But they calculate tax benefit on depreciation for each year incl. the year of disposal.
Can you please tell why is that? I do not quite understand what they mean by saying that tax written down value is allowable or chargeable…
Many thanks!!
In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other 🙂
It is the normal way of dealing with capital allowances – that in the final year there is a balancing charge or allowance of the different between the tax written down value and the sale proceeds.
You really should watch my free lectures on investment appraisal with tax, where I explain the rules with examples. I cannot type out all my lectures here 🙂
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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