Adjustments to the accounts
In the computation of the income tax of the client, depreciation is allowed as an expense in the income statement. Instead, capital allowances on the capital investments are allowed. The taxpayer computes the capital allowances as per the prescribed rates by the commissioner of income tax. These include investment deduction, wear and tear allowance as well as the industrial building deduction. In the case of Andrew, the capital allowances can be computed as below:
Computation of the writing down allowance on general pool for the year 2012/2013 was at 18%.
Balance brought forward on General pool = £2500
Add: New equipment purchased = £5000
Less: Old Machine sold = (£600)
Net value of general pool for capital allowance = £ ...