Prime Cost + Diminshing Value Answer Template PDF

Title	Prime Cost + Diminshing Value Answer Template
Course	Taxation Law
Institution	University of New England (Australia)
Pages	1
File Size	55.7 KB
File Type	PDF
Total Downloads	64
Total Views	162

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PRIME COST & DIMINISHING VALUE: 100% Business, Cost $80,000, 5 Years Effective Life

Prime Cost Method Using the prime cost method, can claim a fixed amount each year. The following formula is used for the prime cost method: Asset’s Cost × (Days Held/365) × (100%/Asset’s Effective Life) Example If the asset costs $80,000 (after excluding GST if entitled to claim it) and has an effective life of 5 years, can claim 20% of its cost, or $16,000, in each of the five years. The cost includes the amount paid for the asset as well as any additional amounts paid for transport, installation or making it ready to use. The calculation is: $80,000 x (365/365) ×20% = $16,000

Diminishing Value Method The following formula is used for the diminishing value method: Base Value × (Days Held/365) × (200%/Asset’s Effective Life) Example If the asset cost $80,000 and has an effective life of 5 years, the claim for the first year will be: YEAR 1: $80,000 × (365/365) × (200%/5) = $80,000 x 40% = $32,000 The cost includes the amount paid for the asset (excluding GST if entitled to claim it) as well as any additional amounts paid for transport, installation or making it ready to use. The base value reduces each year by the decline in the value of the asset. This means the base value for the second year will be $48,000; that is, $80,000 minus the $32,000 decline in value in the first year. The claim for the second year will be: YEAR 2: $48,000 × (365/365) × (200%/5) = $48,000 x 40% = $19,200 In the third year, the base value will be $28,800 and the claim will be $11,520. In the fourth year, the base value will be $17,280 and the claim will be $6,912. This will continue until the value reaches zero. Once the value of the asset falls below $1,000, can choose to transfer its remaining value to a low-value pool. By doing so, can claim depreciation for the asset together with any other lowvalue assets, rather than making separate calculations for each....