Accelerated Capital Allowances

jewels.p

Can one of you experts on here explain to me (in simple language) what exactly "Accelerated Capital Allowances" means and in what instance you would use it. I googled it but still dont quite get it.

Thanks a lot:001_smile:

Steve Collings

Hi,

The term 'Accelerated Capital Allowances' is usually referred to in financial reporting where deferred tax is concerned. Quite often HMRC will grant capital allowances (Annual Investment Allowances) on a qualifying item of fixed asset (e.g. a computer) which are higher than the rates of depreciation applied in the accounts to the same asset(s) - hence the capital allowances are thus 'accelerated'. In the capital allowances computation a company may claim 100% capital allowances against a new computer, hence the tax written down value of the computer will be zero (as it's all written off in the year of acquisition). The depreciation rate in the accounts for the same computer may be 3 years on a straight-line basis, so the computer will still have a book value in the accounts. The fact that HMRC have allowed a company to write off the whole amount of the computer in year 1 mean that 2 year's worth of capital allowances have essentially been accelerated. In theory this difference would therefore give rise to a deferred tax liability and is usually disclosed as follows in the accounts (under the deferred tax note):

Opening deferred tax balance X
Accelerated capital allowances X
Closing deferred tax balance X

Hope that helps

steve

jewels.p

Thanks Steve:thumbup1:

beverly hudson

There are the disclosures that should also be considered. These could feature in an exam situation so be aware of these also.

Steve Collings

beverly hudson wrote: »

There are the disclosures that should also be considered. These could feature in an exam situation so be aware of these also.

I'm not sure what you mean here. The OP merely wanted an explanation of accelerated capital allowances, therefore I feel that digressing into disclosure issues would take the OP's thread off topic.

Also (though I may be wrong), but the question asked by the OP does not suggest it is exam related. It sounds like a real-life issue the OP is facing.

deanshepherd

Monsoon

deanshepherd wrote: »

True, that.

jewels.p

Hey I am not a troll??????:huh:

PGM

jewels.p wrote: »

Hey I am not a troll??????:huh:

I don't think he meant you.

Monsoon

PGM wrote: »

I don't think he meant you.

He totally didn't.

Dean

Monsoon wrote: »

He totally didn't.

Agreed. It was aimed at Bev. She's always had a 'thing' for Steve :001_wub:

Regards

Dean

Monsoon

Dean wrote: »

Agreed. It was aimed at Bev. She's always had a 'thing' for Steve :001_wub:

Regards

Dean

jewels.p

Now you all mention it I do remember the name from before.

Steve was right (as he always is). I was needing to know for a real life situation not an exam one and as always his answer was the one I needed.

Thanks again Steve :thumbup1: