H & R Block Basic Course Chapter 8

HINTS

When you fill out a UCA schedule or a LVP worksheet, make sure that all the relevant information is filled in. All of it is important for preparing the sheets for next financial year.

P.C. rate = 100/life expectancy

Asset acquired before 10.05.06: D.V. rate = 150/life expectancy

Asset acquired 10.05.06+: D.V. rate = 200/life expectancy

Remember that the prime cost depreciation is calculated from the original cost, NOT from the CAV of the previous year.

In the case of joint owners, each 50% is treated as if it were a separate asset.

Common D.V. rates (acquired new 10.05.06+):

Car 25.0% Computer 50.0% Laptop 66.67%

A summary of decline in value (depreciation)

COST OF ASSET ($)	TREATMENT
0 - 99	Even if it is a durable asset like a printer or scanner the ATO allows any asset costing under $100 to be treated as a consumable. Hence it need not be depreciated.
100 - 299	Should be depreciated at 100%. Properly it should remain on the schedule in future years, because it might be sold eventually and the money received would be assessable income.
300 - 999	Can either be put into a low value pool or depreciated at the UCA rate.
1000+	Must initially be depreciated on a UCA schedule until its value falls under $1000. Then it can either be put into the LVP or continue on the UCA schedule.

Question 1

ASSET	EFFECTIVE LIFE	D.V. RATE	P.C. RATE
Air conditioner (room unit)	10y (p2269)	200/10 = 20%	100/10 = 10%
Photocopier (office machine)	5y (p2285)	200/5 = 40%	100/5 = 20%
Suitcase	10y (p2287)	200/10 = 20%	100/10 = 10%
Wheelbarrow	10y (p2288)	200/10 = 20%	100/10 = 10%

Question 3

Part 1

YEAR	100% DEPRECIATION
2006	3965 x 15% = 595 CAV 3370
2007	3370 x 15% = 506 CAV 2864
Sold 30.06.07 for 2500	Balancing adj. = 364 loss

506+364 = 870 at the appropriate item.

YEAR	100% DEPRECIATION	CLAIMED DEPRECIATION
2005	1295 x 25% = 324 CAV 971	324 x 70% = 227
2006	971 x 25% = 243 CAV 728	243 x 70% = 170
2007	728 x 25% = 182 CAV 546	182 x 70% = 127
Sold 30.06.07 for 650	Balancing adj. = 104 profit	Bal. adj. = 104 x 70% = 73 profit

127 at the appropriate item; 73 at item 22 category 1.

YEAR	100% DEPRECIATION	CLAIMED DEPRECIATION
2005	1879 x 20% x 210/365 = 216 CAV 1663	216 x 85% = 184
2006	1663 x 20% = 333 CAV 1330	333 x 85% = 283
2007	1330 x 20% x 245/365 = 179 CAV 1151	179 x 85% = 152
Sold 02.03.07 for 995	Balancing adj. = 156 loss	Bal. adj. = 156 x 85% = 133 loss

152+133 = 285 at the appropriate item.

Part 2

If an assessable gain on disposal of an asset has been made, it should be declared at item 22 category1.

Question 4

OAV at July 1 2007 is $26,957.

26,957 x 18.75% = 5054 x 80% taxable use = 4043.

D1 deduction = 6510 + 4043 = 10,553.

Question 5

a) YES. Purchased this financial year for $300 – 999.

b) NO. Software must be depreciated at 40% P.C., and P.C. depreciation assets cannot be put into a LVP.

c) YES. The computer is a low value asset. It has depreciated to an A.V. of under $1000, and therefore can be put into a LVP.

d) NO. Since the asset cost under $300 it should be claimed at 100%. However, it should still be written on the UCA schedule. Only assets costing under $100 can be considered to be consumables rather than durable assets.

Question 6

a) YES. Once a LVP has been created all assets costing between $300-999 (i.e. low cost assets) must be allocated to the pool, unless it is chosen to depreciate them prime cost.

The taxpayer has a choice regarding whether he wishes to put a low value asset into the LVP.

b) A LVP has been established this financial year…

ASSETS ACQUIRED IN THIS AND FUTURE YEARS

ASSETS ACQUIRED IN PREVIOUS YEARS

Low cost assets

MUST be added to the LVP.

Low cost assets

If an asset was acquired in a previous financial year for under $1000 it must remain outside any LVP which is later established.

Low value assets

Taxpayer has a choice of adding the asset to the LVP or keeping it out.

However once the choice is made the asset cannot later be put into the LVP.

Low value assets

Provided the asset cost $1000 or more, and has depreciated to under $1000, it can be added to the LVP when the LVP is established.

However if this chance is ‘missed’ then the asset cannot later be put into the LVP.

CANNOT or MIGHT NOT be added to the LVP

· The fax machine was a low cost item in the year it was purchased, and therefore it must remain outside the LVP.

· The software is being depreciated prime cost and so cannot be added to the LVP.

· The laptop could be put into the LVP but because it is being depreciated at 50% D.V. it would give a better deduction if it were kept out. Also, if it is sold at a loss (which is likely) then the loss will be directly deductible, rather than being balanced within the LVP.