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Depreciation allowance - plant and machinery 

Assets purchased on hire purchase - the old system applies

Such assets are not pooled under the new system. But when all hire-purchase installments have been paid, the reducing value of the asset will be transferred to the relevant pool.

Legally speaking, assets on hire purchase do not become asset of the buyer until all hire purchase installments are fully settled. Nevertheless, Section 37A of Inland Revenue Ordinance provides initial allowances on the capital portion of each installment and annual allowance on the reducing balance of the full cost (which is the cash price excluding the hire-purchase interest). 

Interest paid under hire purchase is deductible. So, it should be separated from the capital cost of the asset for depreciation allowances purpose. 

Click here for an illustration of depreciation allowances on assets under hire-purchase. 


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