Question

1. Trevor sold shop fittings from his retail store on 31 October 2017 for $3,700. The fittings had originally cost $5,600 and were depreciated using the diminishing value method using an effective life of 10 years. The opening adjustable value was $4,000 on 1 July 2017. The fittings were originally purchased in 2010/11. Decline in value on Trevor’s other assets was $15,000.
2. Hannah sold equipment from her factory on 31 May 2018 for $9,200. The equipment had originally cost $11,000 and was depreciated using the prime cost method using an effective life of 5 years. The opening adjustable value was $6,000 on 1 July 2017. Decline in value on Hannah’s other assets was $1,700.
3. Joe sold office equipment from his law practice on 1 November 2017 for $600.  The office equipment had an original cost of $1,800 but was added to the low value pool in 2015 when it became a low value asset. The low value pool had an opening balance of $3,500 and there were no additions to the pool during the year.

Required: The following are all resident taxpayers. In each case, calculate the deduction available for decline in value as well as any assessable income (if any) arising from the disposals during the 2017/18 tax year.

Answer 1

a. Trevor sold shop fittings from his retail store on 31 October 2017 for $3,700. The fittings had originally cost $5,600 and were depreciated using the diminishing value method using an effective life of 10 years. The opening adjustable value was $4,000 on 1 July 2017. The fittings were originally purchased in 2010/11. Decline in value on Trevor’s other assets was $15,000.

Answer :

Decline in Value for 17/18 year = 190.04 (5600/10 x 62/365 x 200%)

Adjusted Value for 1 October 2017 = 3,809.6 (4000-190.4)

Decline in Value other asses -15,000

Balancing adjustment(loss on disposal) – 109.6 (3,700-3,809.6)

Total Deductions 15,109.6 (-15,000-109.6)

b. Hannah sold equipment from her factory on 31 May 2018 for $9,200. The equipment had originally cost $11,000 and was depreciated using the prime cost method using an effective life of 5 years. The opening adjustable value was $6,000 on 1 July 2017. Decline in value on Hannah’s other assets was $1,700.

Answer :

Decline in Value for 17/18 year 2024 (11000/5 x 334/365)

Adjusted Value on the date of sale : 3,976 (6,000-2,024)

Decline in Value other asses :-1,700

Balancing adjustment(gain on disposal) is assessable income – 5,224 (9,200-3,976)

Therefore, 3524 included as assessable income (5,224-1,700)

c. Joe sold office equipment from his law practice on 1 November 2017 for $600.  The office equipment had an original cost of $1,800 but was added to the low value pool in 2015 when it became a low value asset. The low value pool had an opening balance of $3,500 and there were no additions to the pool during the year

Answer :

In this case of sale of an asset that forms part of a low value pool, the sale proceeds will be used toreduce the value of the pool.

Calculation balance of the pool:

Opening balance of the pool 3,500

Less: Sale proceeds 6,00

Closing balance of pool 2,900

Following deductions and income shall be available to Joe for 2017/2018 year.Deduction for decline in value of low value pool = 2900*37.5% = 1087.44