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An example of CBA : cost of construction is available

Company X bought an office from a property developer on 1 May 2004 at $10,000,000 (site value excluded). The office's construction cost is $4,000,000. The company's accounts end on 31 December.

On 12 January 2006, the office was sold to Company Y for $3,000,000 (site value excluded). Company Y makes up its accounts on 31 January. 

Company X

Year of assessment 2004/2005

Annual allowance: cost of construction $4,000,000 * 4% = $160,000.

Year of assessment 2005/2006

Annual allowance: cost of construction $4,000,000 * 4% = $160,000.

Year of assessment 2006/2007

Disposal of CB ---> Balancing adjustment:

Residue of expenditure before sale: $4,000,000 - $160,000 - $160,000 = $3,680,000 less sales price for building $3,000,000 equal to $680,000 (balancing allowance) --- a deduction from assessable profits. 

Company Y

Year of assessment: 2006/2007

Residue of expenditure after sale: $3,680,000 – balancing allowance $680,000 = $3,000,000.

Annual allowance: residue of expenditure after the sale / number of years of assessment from the year of assessment of the sale to the 25th year of assessment after the building was first used

= $3,000,000 / no. of years from 2006/2007 to 2029/2030 = $3,000,000 / 24 = $125,000.

The annual allowance is the same until 2029/30 when the residue of expenditure is completely written off. From 2030/31 onward, no CBA will be granted.

 

 

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