ACCA Taxation (F6) Practice Exam

What determines whether a chattel is classified as wasting?

1. Its age and condition

2. Its expected lifespan of less than 50 years

3. Its market demand

4. Its original cost

The correct answer is: Its expected lifespan of less than 50 years

The classification of a chattel as wasting is primarily based on its expected lifespan. Specifically, a chattel is considered a wasting asset if it has an expected lifespan of less than 50 years. This classification is significant for taxation purposes, particularly in the context of capital allowances and the treatment of such assets when they are disposed of or fully depreciated. Wasting assets, by definition, are those that are expected to have a limited utility or economic value over a relatively short period. Thus, the focus is on the anticipated useful life of the asset rather than on its physical characteristics, such as age and condition or factors like market demand and original cost. While these can influence value, they do not determine the classification of an asset as wasting under tax rules. Understanding this concept is crucial for tax professionals as it directly affects how different assets are treated in financial statements and taxation calculations. This classification may also influence investment decisions based on the potential for capital allowances and depreciation options available to businesses.