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Hi,
If a question states a purchase of an asset that is expected to be scrapped less that 8 years WITHOUT a clear statement to support the fact that a short life asset election is elected, should I assume that such an election has been made?
I tried on a question with the above scenario and without the SLA election but it’s wrong. The answer at the back of the Kaplan book shows computation with the election.
Please help.
The examiner would usually state whether the election was to be made, however, if the asset is to be scrapped I would read that as having no residual value and with a life of less than 8 years it would qualify as a SLA.
Even then I would only make the election if there was insufficient AIA to cover all the expenditure of the period.
The reason for making the election is that at the end of its short life its residual value will be lower than its tax wdv, therefore giving rise to a balancing allowance which would not have been available if the asset was contained within the pool.
If taxpayer had claimed AIA then the tax wdv would be nil so a SLA election would only give rise to a balancing charge – NOT an outcome the taxpayer would want!!
I do not have the Kaplan book to see the example but hope this helps
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