Question 1

(a) Aries Ltd is a trading company. During the year to 31 December 2017, three items of office furniture (20%) were purchased for $8,000 and two old items (the cost of which was $3,000 and the tax reducing value was $900) were sold for $700. The tax reducing value b/f of the assets for the year of assessment 2017/18 was:

20% pool $65,000

30% pool $30,000

Required:

Compute the depreciation allowance for the year of assessment 2017/18 for Aries Ltd.

(b) Mr. Cheung purchased a new delivery van under hire purchase on 1 January 2018 to replace the old one for his business during the year ending 31 March 2018.

Cost of the new van (cash price) $40,000

Less: Old van trade-in value (5,000)

35,000

Less: Down payment (10,000)

25,000

Add: Interest 2,000

27,000

The sum of $27,000 is payable by 30 equal monthly installments of $900 each, commencing from 1 January 2018. The cost of the old van was $20,000 and its tax written down value as at 1 April 2017 was $4,000. It was the only asset in the 30% pool of Mr. Cheungs business.

Required:

Compute the depreciation allowance (or balancing allowance/charge as appropriate) for the old van and the new van respectively for the year of assessment 2017/18.