Deck 8: Capital Allowances

Question 1

Ron Edwards owns a courier company in Sydney. On 1 July 2019 Ron purchased a luxury van for $71,000, with an effective life of seven years which he used 90% for business purposes during the 2019-20 tax year. Given that the company does not qualify for the small business concessions, the maximum depreciation deduction that can be claimed by the business for the van for the 2019-20 tax year is

A) $14,807
B) $20,286
C) $18,257
D) $16,452

Answer 1

$14,807

Question 2

Smalls Pty Ltd is a photography business which is also a small business entity. On the 1 July 2019, it acquired a laser printer costing $11,000 (5-year life) and some camera equipment costing $10,000 (8-year life) for 100% use in the business.
The maximum depreciation deduction that can be claimed by Smalls Pty Ltd in relation to the above assets for the 2019/20 tax year is:

A) $6,900
B) $21,000
C) $4,400
D) $2,500

Answer 2

$21,000

Question 3

Massive Pty Ltd is a large corporate entity with annual turnover of $90 million. What is the maximum deduction that can be claimed by Massive Pty Ltd at the end of the 2019-20 tax year in relation to the following items?
A computer costing $4,500 acquired on 1 July 2019 (effective life self-assessed as four years).
Costs of $10,000, incurred in raising equity for the business via a prospectus in May 2020.

A) $4,500
B) $6,450
C) $2,250
D) $4,250

Answer 3

$4,250

Question 4

Which of the following statements is not true regarding the eligibility to claim a decline in value deduction for a depreciating asset?

A) Decline in value can only be claimed if the asset is used, either wholly or partly, for income producing purposes
B) In the case of a hire purchase agreement over an asset, the decline in value can only be claimed by the economic owner of the asset
C) In the case of a depreciating asset that is a partnership asset, the decline in value can only be claimed by the individual partners and not the partnership
D) In the case of a depreciating that is subject to a lease where the asset is fixed to land, the decline in value can only be claimed by the lessor

Question 5

AZE IT has developed some software internally and it chooses to place the costs of this internally developed software into a software development pool. Which of the following statements about the software development pool are incorrect?

A) In the first year of the software development pool the decline in value rate is 20%
B) In the second year of the software development pool the decline in value rate is 30%
C) In the third year of the software development pool the decline in value rate is 30%
D) In the fifth year of the software development pool the decline in value rate is 10%

Question 6

Bay Sheetmetal Ltd owns a cutting machine that has an effective life of 5 years. The written down value of the cutting machine on 19 May 2020 is $14,320. On 19 May 2020, the company sold the cutting machine for $10,000. Does Bay Sheetmetal Ltd have to include any amount into assessable income or is it able to claim a deduction for the disposal of the cutting machine?

A) An amount will need to be included in assessable income of $4,320
B) A deduction will be allowed for $4,320
C) A deduction will be allowed of $2,864
D) An amount will need to be included in assessable income of $2,864

Question 7

On 21 December 2019, Taylor acquired a one bedroom apartment in Pyrmont for$760000. She immediately rented this property out to tenants at $650 per week.
Based on a quantity surveyor's report, she is advised that the apartment was built by Safety Builders in August 2016. The original construction cost of her one bedroom apartment was$400. What deduction can Taylor claim under Division 43?

A) $19,000
B) $9,967
C) $10,000
D) $5,246

Question 8

AB Partners Pty Ltd spent $16,000 in converting their previous partnership structure to a proprietary company structure. AB Partners Pty Ltd is a small business entity. Is the $16,000, or any amount of it, deductible?

A) $0 is deductible
B) $4,000 is deductible
C) $3,200 is deductible
D) $16,000 is deductible

Question 9

Fast Express Couriers Pty Ltd is a courier business but which is not a small business entity. On the 1 July 2019, it acquired two new vans each costing $22,000 (each with an 8-year life) and some office equipment costing $14,000 (5-year life) for 100% use in the business. What can Fast Express Couriers Pty Ltd claim in relation to the purchase of the above assets for the 2019/20 tax year?

A) $11,100
B) $14,500
C) $16,600.
D) $23,200

Question 10

Moving Big Pty Ltd is a transport business and which is a small business entity. On the 1 July 2019, it acquired a small truck costing $38,000 (with an 8-year life). On 1 May 2020 the company purchased a much larger truck for $140,000. Do not include any adjustment for the closing pool balance in your calculations. What amount can Moving Big Pty Ltd claim in relation to the purchase of the above assets for the 2019/20 tax year?

A) $26,700
B) $145,700
C) $59,000
D) $178,000

Question 11

Cleaners Pty Ltd is a small business entity and during the 2019/20 tax year the company purchased a new cleaning machine that cost $29,000 on 1 September 2019 and a second hand cleaning machine that cost $24,000 on 1 June 2020. The company's opening balance of its general small business pool was $82,000. What is the decline in value that Cleaners Pty Ltd can claim for the year ended 30 June 2020 (also include the effect of its closing pool balance in this calculation)?

A) $135,000
B) $77,600
C) $65,300
D) $52,950

Question 12

Ace Accountants is a partnership that has purchased a new car for use in the partnership. The car cost $95,000 and the car was purchased on 17 March 2020. Ace Accountants is a small business entity. What is the decline in value that the partnership can claim in its partnership tax return for the year ended 30 June 2020?

A) $95,000
B) $57,581
C) $14,250
D) $8,637

Question 13

Very Big Mining Ltd is a large business taxpayer with an aggregated turnover of more than $500 million per year. During the year ended 30 June 2020 the company purchased the following items: 1. Mining truck (effective life of 5 years) on 1 July 2019 for $350,000; 2. Mining equipment on 1 August 2019 for $220,000 (effective life of 8 years) and 3. Mining equipment (effective life of 10 years) on 1 June 2020 for $180,000. Very Big Mining Ltd always uses the diminishing value (DV) method to calculate its decline in value. What decline in value can the company claim for the year ended 30 June 2020?

A) $112,500
B) $225,000
C) $139,317
D) $750,000

Question 14

Ezy Fabricators Pty Ltd is a small business entity and has maintained a general small business pool. The opening value of this small business pool is $380,000. During the year the company sold an asset that was included in the pool, for $35,000. This asset had been originally acquired for $90,000. What is the closing balance of this general small business pool as at 30 June 2020?

A) $345,000
B) $311,500
C) $276,500
D) $231,000

Question 15

Paul purchased an industrial building that is used in carrying on a business in June 2018 for $2.6 million. The construction costs of the building were determined by a quantity surveyor to be $2 million. What is the deduction that Paul can claim for the purchase of this building under Division 43?

A) $50,000
B) $80,000
C) $65,000
D) $104,000

Question 16

Zahid has incurred costs of $12,000 in establishing a new business structure. Zahid is eligible to be a small business entity. Is the $12,000, or any amount of it, deductible?

A) $0
B) $2,400
C) $3,000
D) $12,000

Question 17

ABS Broadcasters Ltd owns a standard patent that cost $1 million that was acquired in 2013 and also a datacasting transmitter licence that cost $60 million and that was acquitted in 2007. What decline in value can ABS Broadcasters Ltd claim for these two items of intangible property for the year ended 30 June 2020?

A) $4,066,667
B) $4,050,000
C) $3,050,000
D) $3,000,000

Question 18

Az Is IT has developed some software internally and it has chosen to capitalise all expenditure on the software during the development phase and then will depreciate the software when the software becomes fully operational. Which of the following statements about the claim for decline in value of this software are correct?

A) Use a software development pool and claim the decline in value at the rate of 20%
B) When the software becomes fully operational Az Is IT can depreciate the software at a flat 10 per cent prime cost depreciation rate
C) When the software becomes fully operational Az Is IT can depreciate the software at a flat 30 per cent prime cost depreciation rate
D) When the software becomes fully operational Az Is IT can depreciate the software at a flat 20 per cent prime cost depreciation rate

Question 19

DKN Pty Ltd owns machinery that has an effective life of 10 years. The opening written down value of the machinery as at 1 July 2019 was $56,000. On 1 June 2020, the company sold the machinery for $51,850. Does DKN Pty Ltd have to include any amount into assessable income or is it able to claim a deduction for the disposal of the machinery?

A) $4,150 deduction allowed
B) $5,141 deduction allowed
C) $991 to include in assessable income
D) $4,150 to include in assessable income

Question 20

JG Pty Ltd incurred $400,000 in feasibility studies on 1 April 2020 and soon after (in May 2020) proceeded to start its manufacturing business. What amount can JG Pty Ltd claim as a deduction for the cost of the feasibility studies in its 2020 tax return?

A) $80,000
B) $50,000
C) $20,000
D) $0

Question 21

RG Wholesalers Pty Ltd is a small business entity and as at 1 July 2019 had an opening balance of its general small business pool of $120,000. During the 2020 tax year the company purchased new equipment for $45,000 on 1 December 2019 and for $60,000 on 1 May 2020. The company disposed of an old machine and received $5,000 for its disposal. What is the closing balance of the company's general small business pool as at 30 June 2020?

Question 22

Yanni owns a medium size business that is not a small business entity but that has a turnover of less than $500 million. On 1 May 2020 Yanni purchased new machinery for use in business for $200,000. The effective life of this new machinery is ten years. What is the maximum depreciation deduction that can be claimed by the business for the purchase of this new machinery for the 2019-20 tax year?

Question 23

Eager Growth Ltd unsuccessfully attempted a takeover of a competitor business and incurred $130,000 in costs in doing so. Is there any deduction that Eager Growth Ltd may be entitled to?

Question 24

The trustee for the Residential Property Unit Trust completed the construction of eight apartments in a residential apartment complex on 1 September 2019. The construction cost was $2 million. What deduction can the trust obtain for the year ended 30 June 2020?

Question 25

Wildsong Enterprises Pty Ltd is a business (not a small business entity) that disposed of two assets in the year ended 30 June 2020. One asset, a van, had a written down value of $30,000 as at 1 November 2019 (the date of disposal) and it was disposed of for $40,000. The other asset, machinery, had a written down value of $42,000 and was disposed of for $28,000. What are the tax consequences of these two disposals of plant and equipment for Wildsong Enterprises Pty Ltd for the year ended 30 June 2020?