Depreciation allowance - plant and machinery -
the old system
system, depreciation allowances are separately computed for each and every
An initial allowance of 60% is
granted on the capital expenditure incurred.
Annual allowance at the proscribed
rate under IRR2 is granted on the reducing value of the asset if such
asset is owned and used at the end of the basis period. The computation is
like the Reducing Balance Method of depreciation in accounting.
Balancing adjustments, in the form
of balancing charge or allowance, will arise when the asset is sold,
destroyed or put out of use. But if the asset is put to use for other
purpose than for the trade, no balancing adjustment will be made.
Balancing charge is the excess of the disposal proceeds over the reducing
value; whereas balancing allowance is the excess of the reducing value
over the disposal proceeds. Of course, to avoid a tax on capital gain, the
balancing charge is restricted to the total allowances granted. In
essence, the balancing adjustment is to adjust the total allowances to the
net cost of the asset (that is the purchase cost less the disposal
proceeds) throughout the life of the asset.
This method is still applicable in
the following situations:
Press the above
underlined topics to see how depreciation allowances are computed.