Hello Sir,
In Q 34 of the Pre-Sep 2023 Mock exam the question is evaluating buying or leasing the machine.
My question is about the tax-allowable depreciation it has come on straight line basis this time .
So when deciding the depreciation amount for straight line
it should be cost -residual value the dividing by the life
but here for the tax allowable it was different the depreciation was done on the full cost of the machine 560000/5=112000
is this the correct way for the tax-allowable depreciation on straight line basis.
Thanks,
Ask the Tutor ACCA FM
Tax allowance on straight line depreciation-Pre-Sep 2023 Mock exam
2y ago#1The correct way to calculate tax-allowable depreciation on a straight-line basis is to use the full cost of the machine, without subtracting the residual value.
In the given example, the tax-allowable depreciation is calculated as $112,000 per year, which is the full cost of the machine ($560,000) divided by the useful life of the machine (5 years)
So in t2 - 5 is 112,000 * 0.2 = 22,400
Then in t6 the wdv is 112,000
rv is 60,000
so thats a bal allow of 52.000 * 0.2 = 10,400
(Cost - Residual value) × %
This method is suitable for assets which are used up evenly over their useful life, e.g. fixtures and fittings in the accounts department.
If not then........
(Cost of asset - residual value) / expected useful life of asset
Thanks a lot for clarification.
2y ago#3You are most welcome
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