ACCA Advanced Taxation (ATX) Practice Exam

What defines a wasting asset?

1. Assets that depreciate rapidly

2. Any asset with a predictable life of less than 50 years

3. Assets that lose value without use

4. Any asset with no market value

The correct answer is: Any asset with a predictable life of less than 50 years

A wasting asset is generally understood to be an asset that has a limited useful life, typically resulting in a predictable reduction in value over time. The most pertinent definition in this context is one that reflects this element of predictability concerning the asset's lifespan. For example, natural resources like mineral rights or timber can be classified as wasting assets due to their finite nature; they will be consumed or depleted with use or over time. When considering this definition, an asset with a predictable life of less than 50 years aligns directly with this concept, as it suggests a specific time frame for the asset's economic value. In terms of the other options, while some assets do indeed depreciate rapidly, this is not limited to wasting assets and can apply to any asset. The option referring to assets that lose value without use does not capture the essence of predictability and life expectancy. Finally, stating that an asset has no market value is inconsistent with the idea of a wasting asset, which can still possess some market value even as it diminishes over time. Therefore, the correct understanding hinges on the asset's predictable lifespan, making the identification of wasting assets based on their expected life span the most accurate and applicable definition.