ACCA Taxation (F6) Practice Exam

How is the annual straight line allowance calculated for structures and buildings?

1. 1% for every 10 years

2. 4% for every 25 years

3. 3% over 33 years and 4 months

4. 5% for every 20 years

The correct answer is: 3% over 33 years and 4 months

The annual straight-line allowance for structures and buildings is calculated based on an established method that reflects the expected useful life of the asset. In the context of the options provided, the correct approach follows the principle that the allowance is determined by the expected lifespan of the structures and buildings. The option that states a rate of 3% over 33 years and 4 months is aligned with common practices regarding the depreciation of buildings for tax purposes. Specifically, the UK tax system typically allows a straight-line deduction based on a percentage of the initial cost of the building, reflecting its useful life. Here, 33 years and 4 months translates to a depreciation period that effectively yields an annual allowance of 3% for the building's lifespan. The other options reflect different percentages and timeframes that do not conform to the standard practices for calculating straight-line allowances for this type of asset. For instance, the typical method does not support a 1% rate for every 10 years or a 4% rate for every 25 years as they do not accurately represent the depreciation accounting principles or the guidelines set by the tax authorities governing asset management for structures and buildings. Thus, the calculation of 3% over 33 years and 4 months is the most appropriate