Tutorial 12 Answers

Answer to Question 1

Kuby Ltd
Industrial building allowance
Year of assessment 1998/99
Basis Period: year ended 31 March 1999
Cost of Construction ($4,000,000 x 1/2) 2,000,000
Initial allowance - 20% 400,000
Annual allowance - 4% 80,000 480,000
W.D.V. c/f 1,520,000

Years of Assessment 1999/2000 to 2006/2007

Annual Allowance ($2,000,000 x 4% x 8) 640,000
W.D.Y. c/f 880,000

Year of assessment 2007/2008

W.D.V. b/f 880,000
Sale Proceeds ($2,600,000 x 50%) 1,300,000
Balancing charge 420,000

Industrial building allowance

Year of assessment 2007/2008
Basis Period: year ended 31 March 2008
Residue of expenditure before sale 880,000
Add: balancing charge 420,000
Residue of expenditure after residue 1,300,000
Annual allowance ($1,300,000 x 1/17*) 76,471
W.D.V c/f 1,223,529

* Year of first use by Ruby Limited = 1998/99

25th year after year of first use = 2023/2024
Year of first use by Stone Ltd = 2007/2008
Number of years from 2007/08 to 2023/2024 = 17 years
Answer to Question 2
City Ltd Year of assessment 2003/04
Commercial building allowance

City Ltd Year assessment 2003/04

Refurbishing allowance
Answer to Question 3

(i) Hardware Ltd

Industrial building allowance
Allowance
$ $
Year of assessment 2012/13
Qualifying expenditure:
Cost of construction 8,000,000
Bank interest 150,000
8,150,000
Initial allowance: $8,150,000 x 20% 1,630,000 1,630,000
WDV c/f 6,520,000
Less: Non-qualifying portion- ($1,630,000 X 15%) 244,500
1,385,500
Year of assessment 2013/14
WDV b/f 6,520,000
Addition of qualifying expenditure:
Cost of construction $3,000,000
Bank interest 450,000 3,450,000
9,970,000
Initial allowance: ($3,450,000 X 20%) 690,000 690,000
9,280,000
Annual allowance: ($8,150,000 + $3,450,000) x 4% 464,000 464,000
WDV c/f 8,816,000 1,154,000
Less: Non-qualifying portion - ($1,154,000 x 15%) 173,100
980,900

ii) Treatment of bank interest

The bank interest before the completion of the building is capital in nature and will be
included as capital expenditure of the cost of the building. However, the bank interest
attributable to the cost of construction of the building will be included as qualifying
expenditure and ranks for industrial building allowance.

The bank interest incurred after the completion of the building is revenue in nature and
will be deducted from the company's profit.