ACCA FM · Chapter 7 · Question 6 of 10
A machine was bought for $120,000 at the start of year 1 and is sold for $30,000 at the end of year 3. Tax-allowable depreciation is 25% reducing balance, claimed in years 1 and 2, with a balancing adjustment in year 3 (no writing-down allowance is claimed in the year of disposal). What is the balancing allowance in year 3?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $37,500
Explanation
Tax written-down value: start 120,000; year 1 TAD 30,000 leaves $90,000; year 2 TAD $22,500 leaves $67,500. Balancing allowance = written-down value - sale proceeds = $67,500 - $30,000 = $37,500. Claiming a further year 3 TAD of $16,875 first would wrongly give a balancing allowance of $20,625.
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