ACCA Taxation (F6) Practice Exam

How is the allowable cost for a part disposal calculated?

1. (A + B) / original cost

2. (A / A + B) x original cost

3. (Gross proceeds / Market value) x retained cost

4. (A - B) / gross proceeds

The correct answer is: (A / A + B) x original cost

The correct calculation for allowed costs in the context of part disposals involves determining the proportion of the original cost that relates to the retained asset after the disposal. This is essentially aimed at ensuring that the costs attributed to the part of the asset being disposed of are calculated based on its relative value in relation to the total asset. Option B states that the allowable cost is calculated as (A / (A + B)) x original cost. Here, A represents the value of the part remaining after the disposal, while B represents the value of the part that has been disposed of. By dividing A by the total of A and B, this formula determines the proportion of the original cost that corresponds to the retained part of the asset. Multiplying that proportion by the original cost gives a precise representation of how much cost can be allocated to the retained asset, which is essential for accurate accounting and tax purposes. This method ensures that only the necessary and relevant costs are reflected in any calculations pertaining to the remaining asset, thereby adhering to the principles of tax accounting. In contrast, other options might not accurately represent how the allowable cost should be derived. For example, using gross proceeds or market value inappropriately, as seen in some of the other choices, may lead