ACCA Advanced Taxation (ATX) Practice Exam

If a 130% super deduction was claimed, how is the balancing charge calculated for disposals?

1. Proceeds multiplied by 130%

2. Proceeds multiplied by 100%

3. Proceeds minus capital allowances

4. Proceeds minus initial investment

The correct answer is: Proceeds multiplied by 100%

When calculating the balancing charge for disposals involving a super deduction, the correct approach is to consider the proceeds from the asset disposal. The balancing charge arises when the proceeds exceed the tax written down value (TWDV) of the asset. In the context of a super deduction, which allows a higher deduction (130% in this case), the balancing charge is calculated based on the disposal proceeds multiplied by 100%. This is because the balancing charge captures the excess of the disposal proceeds over the TWDV, reflecting the benefits previously received through higher capital allowances. The rationale for using the full proceeds (at 100%) instead of the inflated super deduction percentage is to ensure that the tax implications of the disposal are measured accurately against the actual economic benefit derived from the disposal. The other options do not correctly represent how balancing charges are calculated in this context. For instance, multiplying proceeds by 130% would incorrectly inflate the proceeds for the purpose of balancing charges, while options that subtract capital allowances or initial investments do not align with the methodology used for calculating balancing charges resulting from disposals.