CAF-7 · Chapter 13 · Question 14 of 15
At the end of a project's life, a machine is sold for Rs. 50,000. Its remaining Tax Written Down Value (WDV) is Rs. 80,000. Under the tax rules for capital allowances, this transaction will trigger:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) A balancing allowance, resulting in a tax saving
Explanation
When an asset is sold for less than its Tax WDV, the company has not claimed enough tax depreciation over the asset's life. The tax authority grants a 'balancing allowance' for the shortfall (Rs. 30,000), generating a tax saving (inflow) in the final year.
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