ACCA Taxation (F6) Practice Exam

How are capital allowances calculated on private use assets?

1. They are not allowed at all

2. Capital allowances claimed are based solely on business use

3. AIA, FYA, and WDA are calculated as usual but pro-rated for business use

4. Only AIA is applicable for private use assets

The correct answer is: AIA, FYA, and WDA are calculated as usual but pro-rated for business use

Capital allowances on private use assets are calculated by considering the extent to which the asset is used for business purposes compared to private use. When an asset is used for both business and private purposes, the capital allowances – which can include Annual Investment Allowance (AIA), First-Year Allowance (FYA), and Writing Down Allowance (WDA) – must be apportioned. This means that the amount of capital allowance that can be claimed is based on the percentage of time the asset is used for business purposes. For example, if an asset is used 70% for business purposes and 30% for private use, only 70% of the capital allowance can be claimed. This approach ensures that claims are aligned with actual business use, thereby maintaining fairness and compliance with tax regulations. In contrast, simply stating that capital allowances are not allowed at all neglects the fact that some business use allows for partial claim. Similarly, claiming that capital allowances are based solely on business use ignores the need to account for private use. Lastly, the assertion that only AIA is applicable also overlooks the fact that FYA and WDA can also still be relevant and need to be collected and adjusted for business use accordingly. Therefore, option C accurately reflects the