ACCA Taxation (F6) Practice Exam

Which capital allowances should be pro-rated for long or short periods?

1. Capital Allowance on Enhanced Expenditure

2. First Year Allowance

3. Main pool, AIA, Special rate pool, WDA for small pools

4. Capital Allowance on Property Rentals

The correct answer is: Main pool, AIA, Special rate pool, WDA for small pools

The notion of pro-rating capital allowances is applicable when the period for which the asset is owned or used does not cover a full year. For long or short accounting periods—such as when a business commences or ceases during the year—capital allowances need to be adjusted to reflect the time for which the assets were actually in use. The correct response involves capital allowances that are computed based on specific pools of assets, such as the main pool, annual investment allowance (AIA), special rate pool, and the writing down allowance (WDA) for small pools. These allowances, namely the main pool and AIA, are provided on the basis of a full year, but when a business operates for a period that is less than or greater than a regular accounting year, these allowances must be proportionately adjusted. Enhanced expenditure and property rentals do not generally require pro-rating in the same way, as they may follow different rules or are determined based on distinct criteria associated with their specific nature and tax treatment. First Year Allowance is typically available for new expenditure and, while significant, does not typically involve pro-rating for short or long periods as it applies from the date the asset is first put to use.