Depreciation Allowance (Parts 1 & 2)

Tutorial Questions

Question 1
Details of the company’s fixed assets are as follows:

Furniture/ Motor
fixtures vehicles
$ $
Cost at 1 January 2021 535,000 220,000
Additions* 55,000 20,000
Disposals (35,000) (40,000)
Balance at 31 December 2021 555,000 200,000

Depreciation at 1 January 2021 245,000 60,000

Charge for the year 80,000 20,000
Disposals (10,000) (28,000)
Balance at 31 December 2021 315,000 52,000

Net book value at 31 December 2021 240,000 148,000

Proceeds from disposal 30,000 12,000

Net book value of disposal (25,000) (12,000)
Profit on disposal 5,000 0

* The addition to furniture/fixtures refers to a new computer acquired at a cost of $55,000 under hire purchase.
The company was required to make a down payment of $6,000 at the time of purchase plus seven monthly
instalments of $8,000 commencing on 1 November 2021.

The tax written down values brought forward in respect of its plant and machinery pools are:
10% - nil
20% - $200,000
30% - $60,000

Required: Prepare the depreciation allowance schedule for 2021/22 based on the above information.

20% 30% HP 30% DA

$ $ $
200,000 60,000
Additions
-Motor vehicle 20,000
-Computer 55,000
IA-60% (12,000) 12,000
IA-HP (12,000) 12,000
200,000 68,000 43,000
Disposal (30,000) (12,000) -
170,000 56,000 43,000
AA (34,000) (16,800) (12,900) 63,700
DA 87,700
WDV c/f 136,000 39,200 30,100

Question 2
Refer to Profits Tax –Tutorial Q6 on Digital Technology Ltd. Prepare the depreciation allowance
schedule for Digital Technology Ltd for the year of assessment 2021/22.

Question 3

Refer to Profits Tax – Tutorial Q7 on Winner Limited. Prepare the depreciation allowance schedule
for Winner Limited for the year of assessment 2021/22.

Question 4

Refer to Profits Tax – Computation Tutorial Q8 on Snow Ltd. Prepare the depreciation allowance
schedule for Snow Ltd for the year of assessment 2021/22.

Question 5 (Modified from ACCA D04 TX)

Glory Ltd is carrying on business in Hong Kong. Below is an extract of its fixed asset movements during the
year ended 31 March 2022:

Date Particulars
1 May 2021 Bought a cutting machine at a cost of $40,000 under hire purchase. A down
payment of $5,000 was made and monthly instalments of $6,000 for seven months
started from 1 May 2021. Sold the old machine for $10,000, making a profit of
$2,000.
1 August 2021 A retail outlet was renovated at a cost of $400,000, including $200,000 being
refurbishment and $200,000 being for wall paneling.

1 February 2022 Bought an energy saving electric motor car for $400,000.

The company’s 2020/21 profits tax return show the following information:

1. The tax written down values brought forward in respect of its plant and machinery pools are:
20% - $200,000
30% - $300,000

2. The qualifying expenditure and written down value for commercial building allowance is $1,200,000 and
$960,000 respectively. Glory started to claim commercial building allowance five years ago based on the
qualifying expenditure.

Required: Prepare Glory Lt’s tax depreciation allowance schedule for the year of assessment 2021/22
showing the eligible depreciation allowance for plant and machinery and commercial building
allowance. (D.A. rate: cutting machine – 20%)

DA schedule 20% 30% HP 20% DA

WDV b/f 200,000 300,000
Additions:
-cutting machine 40,000
IA (24,000) 24,000
200,000 300,000 16,000
Disposal (10,000) -
190,000 300,000 16,000
AA (38,000) (90,000) (3,200) 131,200
DA 155,200
WDV c/f 152,000 210,000 12,800

CBA schedule QE WDV CBA

 $ $ $
Bal b/f 1,200,000 960,000
Addition-wall paneling 200,000 200,000
140,000 1,160,000
AA (56,000) 56,000
WDV c/f 1,104,000

Question 6

Company A has bought some office equipment under hire purchase at an annual lease rental of HK$100,000
including an annual finance charge of HK$35,000. The lease term started on 1 January 2021 for 5 years.
Other than this, the Company also acquired the following assets during the year ended 31 December 2021:

1 February 2021 - Furniture & equipment $200,000

1 April 2021 - Computers $80,000
1 June 2021 - Motor car $220,000

Based on the company’s 2020/21 profits tax return, the written down values of the plant and machinery pools
are:
20% pool - $300,000
30% pool – $120,000

Required: Prepare the depreciation allowance schedule for Company A in respect of the year of
assessment 2021/22. Show all your workings.
(D.A. rates: Furniture & equipment – 20%; Computers – 30%; Motor car – 30%)

20% 30% HP 20% DA

300,000 120,000
Additions:
-Equipment 325,000
-furniture 200,000
-Motor car 220,000

IA-HP (39,000) 39,000

IA 60% (120,000) (132,000) 252,000
380,000 208,000 286,000
AA (76,000) (62,400) (57,200) 195,600
DA 486,600
WDV c/f 304,000 145,600 228,800

Cash price = cost = (100,000-35000) x 5=325,000

IA = (100,000-35000) x 60%=39,000

Question 7 (Modified from ACCA J08 F6 Q3)

West Ltd (West) carries on business in Hong Kong, providing event planning and advisory services. During
the year ended 31 December 2021, West had the following transactions in fixed assets:

(1) Spent $430,000 renovating its offices comprising:

- $250,000 for refurbishing the conference room;
- $30,000 for a new carpet in the entrance lobby; and
- $150,000 for replacing the old carpets in the general office area.

(2) Installed ten new computers for $18,000, including $14,000 for hardware and $4,000 for software.

(3) Bought a new computerised photocopier under a hire purchase agreement on 15 October 2021. A down
payment of $10,000 was paid at the time of purchase and two monthly instalments of $10,000 each were
paid on 1 November and 1 December 2021 respectively. Three more monthly instalments are payable in
2022. The cash price of the photocopier is $55,000.

(4) Paid $400,000 for a new motor van. This new motor van was awarded the title of ‘Best Green Car of the
Year’.

(5) Spent $280,000 to install an energy saving lighting system in the office.

West’s tax depreciation schedule from its 2020/21 tax return shows tax written down values for its 20% and
30% pools of $20,000 and $30,000 respectively.

Required:

(a) Explain the tax treatment of each of the items (1) to (5) by copying the following table in your
Answer Booklet and completing it:

Item Description To be included in the To be adjusted in the If yes, state the treatment basis
tax depreciation tax computation? and the amount of the
allowance schedule? (Yes/No) adjustment.
(Yes/No)
1 Office renovation:
- Refurbishment No Yes $50,000 (20%x$250,000)
- New carpet No No -
- Replacement carpets No Yes $150,000 (100%)
2 Computers No Yes $180,000 (100%)
3 Photocopier Yes No -
4 Motor van No Yes $400,000 (100%)
5 Lighting system No Yes $280,000 (100%)

(b) Based on the treatments identified in part (a), prepare the tax depreciation allowance schedule for
West Ltd for the year of assessment 2021/22, showing clearly the eligible deduction of tax
depreciation allowance.
(D.A. rates: Furniture & fixtures – 20%; photocopier – 30%; Computers – 30%; Motor car – 30%)

20% 30% HP 30% DA

$ $ $ $
WDV b/f 20,000 30,000
Additions 55,000

IA (16,800) 16,800
20,000 30000 38200
AA (4000) (9000) (11460) 24460
DA 41260
WDV c/f 16000 27000 26740