ACCA Taxation (F6) Practice Exam

What is a wasting chattel?

1. A tangible asset lasting more than 50 years

2. An asset not subject to capital gains tax

3. An asset with a life not longer than 50 years

4. A type of real estate property

The correct answer is: An asset with a life not longer than 50 years

A wasting chattel refers to an asset that has a limited useful life, specifically one that is not expected to last longer than 50 years. This definition is important in taxation because wasting chattels are treated differently from other types of assets, particularly in terms of capital gains tax. When such a chattel is disposed of, any gains may not be subject to the same tax implications as longer-lasting assets. Assets that are classified as wasting chattels typically include things like vehicles, machinery, and furniture, which depreciate over time and are not designed to provide benefits or services indefinitely. Understanding this classification is crucial for effective tax planning and compliance. It distinguishes these assets from those that have a longer useful life, which could be subject to different tax treatments under capital gains or allowances. In contrast, tangible assets lasting more than 50 years and certain types of real estate properties do not fit the parameters of wasting chattels, as they are generally considered enduring investments. Additionally, the aspect regarding assets not subject to capital gains tax is broader and does not specifically address the definition of wasting chattels, as many assets could also fall into this category depending on various factors beyond just their lifespan.