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Tax Allowable Depreciation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Tax Allowable Depreciation

  • This topic has 1 reply, 2 voices, and was last updated 2 months ago by John Moffat.
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  • May 26, 2022 at 4:34 am #656463
    Anonymous
    • Topics: 29
    • Replies: 39
    • ☆☆

    Hi Sir, there’s a question on BPP on Investment Appraisal called Hraxin Co. They said straight line depreciation over four and scrap of 500. My question is why does the answer scheme not use a balancing allowance on the 4th year and counts the depreciation amount in the 4th year?

    May 26, 2022 at 6:59 am #656477
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 50053
    • ☆☆☆☆☆

    The answer calculates the depreciation on a financial accounts basis as (5,000,000 – 500,000) / 4 = 1,125,000 per year. After three years the written down value is 5,000,000 – (3 x 1,125,000) = 1,625,000, and therefore there is a balance allowance of 1,625,000 – 500,000 = 1,125,000 in the 4th year.

    (Strictly speaking, the tax allowable depreciation should have been calculated just on the original cost of 5,000,000 and should have been 5,000,000/4 = 1,250,000 per year for the first 3 years. In that case there would have been a balancing allowance of 750,000 in the 4th year. The examiner stated that either answer would get full marks.)

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