ACCA Advanced Taxation (ATX) Practice Exam

When can the gain on a depreciating asset be recognized during rollover relief?

1. At the time of replacement

2. Upon disposal

3. When it is no longer used in the trade or after 10 years

4. During the sale of the original asset

The correct answer is: When it is no longer used in the trade or after 10 years

The recognition of gain on a depreciating asset during rollover relief occurs when the asset is no longer used in the trade or after a period of ten years. Rollover relief enables businesses to defer the capital gain that arises on the disposal of an asset when they reinvest in a qualifying replacement asset. This deferral means that the gain is not recognized immediately upon disposal of the original asset. In practice, if a business stops using an asset in its trade, or if it has been ten years since the asset was disposed of, the gain must be recognized for tax purposes. This condition ensures that the tax implications are properly accounted for, reflecting the time or situation in which ownership or the use of the asset ceases. Therefore, the concept of "no longer used in trade" serves as a trigger for recognizing any gain that may have been deferred during the rollover process, signifying that the asset is now completely disconnected from its prior function in generating income.