ACCA Taxation (F6) Practice Exam

If a short life asset is not disposed of within 8 years of the end of the basis period when expenditure was incurred, what happens?

1. The TWDV is written off immediately

2. The TWDV is transferred to the main pool

3. The TWDV is claimed as an expense

4. The TWDV is permanently lost

The correct answer is: The TWDV is transferred to the main pool

When a short life asset is not disposed of within eight years of the end of the basis period in which the expenditure was incurred, its tax treatment involves transferring the tax written down value (TWDV) of the asset to the main pool. This approach aligns with the tax regulations that govern the treatment of short life assets, allowing for proper tracking of the asset’s value over time. Transferring the TWDV to the main pool ensures that the expenditure associated with the asset continues to be recognized in the capital allowances calculations for the business, rather than being written off or lost. This reflects the intention to keep the asset's tax value accounted for, especially if it was not disposed of within the specified timeframe. This process prevents any loss of the asset's value for tax purposes, enabling the business to benefit from capital allowances on the transferred value in future accounting periods. It fosters a clear path for managing assets that have not been disposed of, ensuring that businesses can benefit from their investments even if they remain in use beyond the short life asset period.