ACCA Taxation (F6) Practice Exam

A balancing allowance or charge occurs in specific circumstances related to the disposal of fixed assets and the calculation of capital allowances on those assets. In the context of non-pool items, these are assets that are not combined with other similar items into a "pool" for tax purposes.

When non-pool items are sold, the tax authority requires that you assess the sale proceeds against the balance of the asset's tax written down value. If the sale proceeds exceed this value, a balancing charge arises, which means that you need to bring the excess amount back into taxable income. Conversely, if the sale proceeds are less than the tax written down value, a balancing allowance is granted, allowing you to reduce your taxable income accordingly.

This treatment ensures that taxpayers accurately account for the economic benefits derived from the disposal of their assets, reflecting any gain or loss in a fair manner. In contrast, for main pool items, the calculations can often result in pooled allowances without a separate balancing charge or allowance specific to individual asset disposals, making them less likely to generate a balancing adjustment. Small pools also typically focus on a collective approach, thus not triggering balancing allowances or charges in the same straightforward manner. Lastly, a single asset purchase does not inherently lead to a balancing charge or