ACCA Taxation (F6) Practice Exam

What occurs to the TWDV of a short life asset after 8 years if it is not sold?

1. It is ignored

2. It is adjusted to market value

3. It is transferred to the main pool for usual depreciation

4. It must be reassessed

The correct answer is: It is transferred to the main pool for usual depreciation

The correct interpretation of what happens to the Tax Written Down Value (TWDV) of a short life asset after a period, such as 8 years, lies in the treatment of assets for tax purposes, especially within the framework of capital allowances. Short life assets are specifically identified within tax legislation to allow accelerated writing down allowances over a shorter period—typically 4 years. If a short life asset is retained for longer than its expected useful life, the TWDV essentially remains, reflecting its depreciated value after the capital allowances have been claimed over the years. After 8 years, because the asset has not reached a point of disposal or a reevaluation, it is typically transferred into the main pool for depreciation purposes. At this stage, the business can continue to claim capital allowances, but under the more standard rules that govern main assets. This means that while the asset was initially treated separately as a short life asset, it does not simply vanish or get reassessed, but rather integrates into the broader asset pool. Other options suggest varying conclusions that do not align with tax treatment: ignoring the TWDV fails to acknowledge the ongoing value of the asset; adjusting it to market value contradicts the basis of claiming capital allowances, which rely