ExpertMedium2 marksMultiple Choice
ACCA · Question 19 · Corporation tax liabilities
Section B - Case 1 (NovaStream Ltd)
In May 2023, NovaStream Ltd purchased new, unused computer servers for £1.2 million to expand its cloud capacity.
Assuming the Annual Investment Allowance (AIA) limit is £1,000,000, what is the maximum capital allowance NovaStream Ltd can claim on these servers in the 12-month accounting period to 31 December 2023? (Ignore First Year Allowances for this calculation).
Section B - Case 1 (NovaStream Ltd)
In May 2023, NovaStream Ltd purchased new, unused computer servers for £1.2 million to expand its cloud capacity.
Assuming the Annual Investment Allowance (AIA) limit is £1,000,000, what is the maximum capital allowance NovaStream Ltd can claim on these servers in the 12-month accounting period to 31 December 2023? (Ignore First Year Allowances for this calculation).
Answer options:
A.
£1,000,000
B.
£1,200,000
C.
£1,036,000
D.
£216,000
How to approach this question
Apply the AIA up to the £1m limit. Put the excess into the main pool and calculate the 18% WDA. Add AIA and WDA together.
Full Answer
C.£1,036,000✓ Correct
NovaStream Ltd can claim the maximum Annual Investment Allowance (AIA) of £1,000,000 on the servers. The remaining £200,000 (£1.2m - £1m) is added to the main pool. A Writing Down Allowance (WDA) of 18% is calculated on the main pool balance: £200,000 x 18% = £36,000. Total capital allowances = £1,000,000 (AIA) + £36,000 (WDA) = £1,036,000.
Common mistakes
Forgetting to claim WDA on the excess over the AIA limit.
Practice the full ACCA TX — Taxation Practice Exam 2
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