ACCA Taxation (F6) Practice Exam

How should the sale of assets be treated in the main pool?

1. Proceeds should be deducted from the pool at the higher of original cost and disposal proceeds

2. Proceeds should be ignored completely

3. Proceeds should be deducted from the pool at the lower of original cost and disposal proceeds

4. Proceeds should be added to the pool balance

The correct answer is: Proceeds should be deducted from the pool at the lower of original cost and disposal proceeds

In capital allowances for tangible fixed assets, the treatment of the sale of assets within the main pool is focused on the need to accurately reflect the remaining balance in the pool after the disposal of an asset. The correct approach requires that proceeds from the sale of a pooled asset be deducted from the pool at the lower of the original cost of the asset or the proceeds received upon disposal. This is because, in the context of capital allowance calculations, the aim is to ensure that the tax relief accurately reflects the true economic situation of the remaining assets. Deducting the proceeds at the lower of original cost or disposal proceeds prevents an overstatement of the pool value, which could occur if the original cost exceeds the disposal proceeds. Additionally, this method aligns with the principles of capital gains tax, where the profit from the sale is calculated based on the higher cost basis (original cost) and supports the concept of fair taxation on asset disposals. In contrast, other approaches would either not accurately reduce the pool or would incorrectly suggest that the original cost should always be the basis for deduction, potentially leading to mismatches in the calculation of allowances. The treatment of proceeds from the disposal at the lower value helps uphold the integrity of the capital allowances system, promoting an accurate reflection