ACCA Taxation (F6) Practice Exam

How is plant and machinery treated concerning capital gains tax?

1. Always treated as a wasting asset

2. Always treated as a non-wasting asset

3. Treated as a wasting chattel unless sold for more than its purchase price

4. Only treated as capital assets

The correct answer is: Treated as a wasting chattel unless sold for more than its purchase price

Plant and machinery are generally treated as wasting assets for capital gains tax purposes, meaning they have a limited lifespan and their value decreases over time. This classification primarily applies to assets that are not expected to provide economic benefits over a long duration. However, the treatment can change if the asset is sold for more than its original purchase price. In such cases, it is no longer treated as a wasting asset in terms of capital gains tax calculations. The profit from the sale over the purchase price would be subject to capital gains tax assessment based on the gain realized. Therefore, the classification of plant and machinery ties into their economic use and value over time, alongside the specifics of a transaction. This understanding aligns with the context of how plant and machinery are typically reported for tax purposes, distinguishing them from other types of assets, such as land or buildings, which are generally categorized as non-wasting assets. Therefore, the correct understanding of plant and machinery’s treatment offers a clear view of their implications in capital gains scenarios.