Study Surgery

A: The purchase cost of the new machinery and the costs incurred in bringing the asset into working condition (that is, the installation costs) would qualify for capital allowances. If the asset is purchased by a small- or medium-sized business it may attract a first-year allowance.

The rate of the allowance depends on the date of purchase. The rates of the first-year allowance (FYA) available on plant and machinery (not including energy saving and water efficient plant; the rate here is 100 per cent to encourage investment in this area) are shown below:

If a first-year allowance is available, then this must be dealt with first, before the asset is transferred to the general pool for capital allowances. Remember never to give a first-year allowance and writing down allowance in the same period. In subsequent periods, when capital allowances are claimed on the machinery, the writing down allowance is 25 per cent a year on a reducing balance basis.

Accounting Technician - November 2007 - Page 25