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Red Ltd contracted for an industrial building to be built in Shatin in November 2010 at a construction cost of $2 million. Initial payment of

Red Ltd contracted for an industrial building to be built in Shatin in November 2010 at a construction cost of $2 million. Initial payment of $1.5 million was made upon the signing of contract. The building was completed in July 2011 when the balance payment was made. Red Ltd immediately used the building in its manufacturing process. Red Ltd closes its annual accounts on 31 December.

As from June 2017, this building was put out of use because the company had moved to Tai Po. In February 2019, the building was put into qualifying use again. In November 2019, it was sold to Blue Ltd for $3 million.

The building was brought into use by Blue Ltd as from January 2020 for manufacturing0 purposes. Blue Ltd closes its annual accounts on 31 March.

Required:

Calculate the depreciation allowances available to Red Ltd and Blue Ltd for all relevant years of assessment. Give explanations where appropriate.

Check figures: Part (b)

Balancing charge $880,000; Annual allowance for Blue Ltd $102,222

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