CH 9 - Capital allowances - Basic Computation

Question 1

Under what value is
an P&M recognised
(used previously for private purposes)

Answer 1

at the market value when it starts to be used in the business
(CAA2001, s.13)

same when P&M is gifted to the trader (CAA2001, s.14

Question 2

What value is used as proceed
on disposal of P&M?

(what needs to hapen)

3 altertnatives

Answer 2

sales proceeds unless;

• P&M is sold for less than MV to someone who can’t claim CA
• P&M is given away
• P&M stops being used in the business by trader

Question 3

What happnes when
original cost is < sales proceeds (MV)

Answer 3

the disposal value is limited to the original cost (CAA 2001, s.62)

Question 4

When CA can be claimed
on acquisition of P&M?

Answer 4

when the expenditure is incurred;
being the date on which the obligation to pay becomes unconditional
usually on delivery, unless exception applies of 4m GAP except HP

CAA2001 , s.5 & s.5(1)

Question 5

When exception applies to general rule
on when expenditure is incurred?

Answer 5

When there is a gap of more than 4 months between: (doesn’t apply to HP agreements)

a. the date on which the obligation to pay becomes unconditional, and
b. the date on which payment is required to be made

then the expenditure is not ‘incured’ until the date on which payment is required to be made.

CAA 2001, s.5(5)

possible to split the expenditure and allocate it to separate accounting periods

Question 6

When is expenditure ‘incurred’ on
CONSTRUCTION?

Answer 6

on the date the work is certified

CAA 2001, s.5(4)

Question 7

List exception to the rulle of
‘when exp.is incurred on construction’

Answer 7

• the asset has become the property of the purchaser before the end of their accounting period, and
• the work is certified within one month following the end of the accounting period,

then the expenditure on the asset is treated as incurred immediately before the end of the accounting period.

CAA 2001, s.5(4)

Question 8

What are wasting chattles & assets

Answer 8

wasting assets are P&M

wasting chattels are movable P&M

Question 9

When can CA be claimed on
asset under HP agreement?

Answer 9

when assets is brought into use
CA can be claimed on deposit before asset being brought into use,

while balance will be claimed when the asset is brought into use.

(no cap. allowances are available under short leasing agreement)

CH9 - 9.6 (pg 82)

CAA 2001, s.67

Question 10

when capital allowances must be clawed back?

Answer 10

When ‘movable P&M’ (wasting chatles)
are sold at a profit
subject to CGT

Question 11

What are Wasting Chattles rulles
on disposal?

Answer 11

• If proceeds of sales are less than or equal to £6,000 the capital gain is exempt.
• 5/3 rule applies if disposal proceeds £6,000, but original acquisition cost was less than £6,000.

(5/3 rulle is applied to (gross proceeds less £6,000))

(Than lower of two gains (actual & restricted 5/3) is used.)