Chapter 11:
Decline in Value & Capital Allowances
- Solutions
QUESTION 11.2
( a ) 1 July 2011. Use of asset commenced at time of acquisition.
(b)
16 Oct 2011. Depreciated from the date on which it became ready for use.
(c)
1 July 2011. The car is depreciated from when it is held ready for any use, not
necessarily a taxable purpose. However, a deduction is not permitted until
used or available for a taxable purpose.
(d)
31 July 2011. Depreciated from the date available for use, not necessarily
from when it is actually used.
QUESTION 11.4
Chemical Sprayer
Temperature Gauge
Soil Elevator
Deleafer
40,000/10 x 12/12
12,000/6 x 2 x 12/12
37,500/15 x 8/12
10,500/7 x 2 x 5/12
4,000
4,000
1,667
1,250
10,917
QUESTION 11.6
$
Espresso Machine
6,000/5
Where a depreciable asset that was depreciated using prime cost is
bought from a related person, the effective life must be the original life
used less the number of years that have expired.
1,200
Drinks Refrigerator
1,200
4,800/8 x 200%
Where a depreciable asset that was depreciated using diminishing value
is bought from a related person, the effective life must be the original
life used. That is, the original basis of calculation must be continued.
Glass Cakes Display
4,200/7 x 200%
1,200
Where a depreciable asset that was depreciated using diminishing value
is bought from a related person, the effective life must be the original
life used. That is, the original basis of calculation must be continued.
Cash Register / Computer
3,400/4 x 200%
1,700
69
Income Tax Law Solutions- Chapter 11
QUESTION 11.8
Nis s an
F ord V an
T oyota
H ino T ruck
Audi
V olvo
Dec line in Value
27,000/8 x 12/12 x
28,220/8 x 200%
22,500/8 x 200% x
127,500/8 x 200%
57,180/8 x 12/12 x
57,466/8 x 200% x
$
2,869
7,055
3,600
31,875
3,788
11,206
60,393
85%
64%
53%
78%
QUESTION 11.10
$
$
5,200
Opening Balance
add: Low Value Additions
Pinball Machine
Less: Decline In Value
Opening Balance
Low Value Additions
Closing Balance
Decline in Value Deduction
Low Value Pool
Cooking Equipment & Fittings
Insect Zapper
Microwave Oven
840
6,040
37.5% x 5,200
37.5% x 840
1,950
315
60,000/15
1,200/4
600/4 x 200%
2,265
3,775
2,265
4,000
300
300
6,865
NOTE The insect zapper CANNOT be placed in the low value pool as it was depreciated using the
prime cost method.
The Pinball Machine MAY be placed in the pool
If pooled, the deduction will equal
37.5% x 840
If NOT pooled, the deduction will equal
840/5 x 150%
Therefore, the asset should be pooled to obtain the maximum deduction.
315
252
The Microwave Oven MAY be placed in the pool
37.5% x 600
If pooled, the deduction will equal
600/4 x 200%
If NOT pooled, the deduction will equal
Therefore, the asset should NOT be pooled to obtain the maximum deduction.
225
300
70
QUESTION 11.12
$
Opening Balance
add: Low Value Additions
Curtains
Dishwasher
Low Cost Additions
Air Cooler
Water Purifier
Less: Decline In Value
Opening Balance
Low Value Additions
Low Cost Additions
Closing Balance
Decline in Value Deduction
Low Value Pool
Oven
Light Fittings
$
3,500
700
920
400
900
1,313
608
244
37.5% x 3,500
37.5% x (700 + 920)
18.75% x 1,300
2,400/6 x 12/12
< $300, immediate deduction
1,620
1,300
6,420
2,165
4,255
2,165
400
250
2,815
Notes - The oven was not eligible to be pooled as it had been previously
depreciated using the prime cost method.
- The air cooler is pooled as low cost assets MUST be pooled
when a low value pool has been used previously.
QUESTION 11.14
$
Espresso Machine
Café Furniture
Hot Water Service
Carpet
Curtains
Oven
Laptop Computer
Low Value Pool O/Bal
Bar Fridge
Ipaq Handheld Computer
Cash Register
4,200/7 x 12/12 (cannot be pooled)
low value asset 870 x 37.5%
1,400/7 x 1.5 x 12/12
1,300/6 x 1.5 x 12/12
8,500/5 limited to
low value asset 600 x 37.5%
780 x 37.5%
3,800 x 37.5%
low cost 750 x 18.75%
low cost 800 x 18.75%
3,400/7 x 2 x 2/12
Decline in Value
600
326
300
325
1,600
225
293
1,425
141
150
162
5,547
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Income Tax Law Solutions- Chapter 11
QUESTION 11.16
$
Open in g B alan ce
(private us e of the printer has already been adjus ted when placed
in the pool - no further adjus tment neces s ary)
add: L o w V alu e A dditio n s
850 x 70%
Mobile P hone
L o w C o s t A dditio n s
720 x 80%
C omputer Monitor
L es s : D eclin e In V alu e
O pening B alance
L ow V alue A dditions
L ow C os t A dditions
C lo s in g B alan ce
37.5% x 400
37.5% x 595
18.75% x 576
150
223
108
D ec lin e in V alu e D ed u c tio n
L ow V alue P ool
1,500/4 x 150% x 12/12 x 80%
D es ktop C omputer
1,800/8 x 200% x 6/12 x 90%
O verhead P rojector
< $300, immediate deduc tion (200x 50% )
P aper S hredder
QUESTION 11.18
72
$
400
595
576
1,571
481
1,090
481
450
203
100
1,234
QUESTION 11.20
(a)
Adjustable Value
Termination Value
Balancing Adjustment
DEDUCTION
(b)
$
26,500
25,000
below car cost limit
900
900
(26,500 - 25,000) x 60%
Adjustable Value
Termination Value
7,200 x 57,009/88,000
Balancing Adjustment
(4,000 - 4,664) x 70%
4,000
4,664
-465
-465
That is, assessable income of $465
(c)
Printer
(0 - 140) x 80%
That is, assessable income of $112
-112
(d)
Computer
1,100 - 1,400
-300
Assessable income of $300
Market Value is used where there is a non-arms length transaction.
(e)
75% of the $700 (i.e. $525) is offset against the pool balance.
(i.e. there is no balancing adjustment)
The available deduction is on the pool opening balance:
$4,200 x 37.5% = $1,575
QUESTION 11.22
$
Low Value Pool - o/bal
2,940 x 37.5%
1,103
Skis
1,180/6 x 150% x 12/12
295
X-Training Machine
4,000/5 x 12/12
800
Saab - bal adj
16,000 - (24,000 x 57,009/70,000)
-3,546
Ford Ranger
40,000/8 x 200% x 12/12
10,000
Stopwatch
low cost 400 x 18.75%
75
Video Camera
Decline in Value
low cost 920 x 18.75%
173
8,900
73
Income Tax Law Solutions- Chapter 11
QUESTION 11.24
$
V olvo
s old 1/7/11
0
V olvo - B al Adj
(31,000 - (43,000 x 57,009/82,000)) x 80%
C omputer
6,700/4 x 12/12 x 90%
C olour P rinter
1,300/4 x 150% x 12/12
F urniture
8,200/5 x 12/12
S aab
52,000/8 x 200% x 12/12 x 80%
10,400
O ffice E quipment
Dec line in Value
4,670/4 x 200% x 5/12
973
15,893
884
1,508
488
1,640
QUESTION 11.26
74
QUESTION 11.28
$
Immediate Write-off
Office Desk
General SBE Pool
Opening Balance
IT Equipment
Computer System
900
10,000 x 30%
4,000 x 15%
3,200 x 15% x 75%
3,000
600
360
3,960
Long Life SBE Pool
Opening balance
25,000 x 5%
1,250
Total deduction for Decline in Value
6,110
General SBE Pool - Closing Balance
10,000 - 3,000 + 4,000 - 600 + (3,200 x 75%) - 360 - 6,000 =
6,440
Long Life SBE Pool Closing Balance
25,000 - 1,250 =
23,750
75
Income Tax Law Solutions- Chapter 11