ACCA Advanced Taxation (ATX) Practice Exam

Which assets qualify as non-current assets for the purpose of CGS?

1. Vehicles costing ≥ £20,000

2. Land and buildings costing ≥ £250,000

3. Office furniture costing ≥ £10,000

4. Computers costing ≥ £5,000

The correct answer is: Land and buildings costing ≥ £250,000

Non-current assets typically refer to long-term investments that a business intends to hold for more than one accounting period, and they are crucial in determining the Cost of Goods Sold (CGS) for tax purposes. Land and buildings are generally recognized as non-current assets due to their nature; they are not expected to be converted into cash or consumed within the business's operating cycle. The threshold of £250,000 signifies substantial investments that would affect CGS calculations significantly. Higher-value assets, such as land and buildings, are also considered to have a longer useful life and can provide significant benefits to the operations of a business over time. In contrast, vehicles, office furniture, and computers are often viewed as non-current assets but are typically subject to lower capital thresholds and are more likely to depreciate in value relatively faster. Hence, they may not qualify as impactful in the same context as land and buildings when assessing CGS. Higher capital expenditure thresholds on long-term properties reinforce their role as essential assets in the long-term strategy of a business, justifying the distinction.