Colonial Limited has a machine which cost $300 000 and has been depreciated by $100 000 to date. The accumulated depreciation for tax purposes is $180 000 and the company tax rate is 30%. The tax base of this asset is:

Question

Quizplus · Accepted Answer

The tax base of an asset is the amount that will be deductible for tax purposes in future years. In this case, the book value of the asset is $200 000 ($300 000 - $100 000), but the tax base is only $120 000 ($300 000 - $180 000). This is because the tax authorities only allow deductions for the amount of the asset that has not yet been depreciated for tax purposes. Therefore, the tax base is $120 000.

Colonial Limited Has a Machine Which Cost $300 000 and Has