Paula, a resident, is a marketing consultant who carries on her own business. He
ID: 2814064 • Letter: P
Question
Paula, a resident, is a marketing consultant who carries on her own business. Her motor vehicle log book indicates that she has used her Volkswagen car 65% of the time for work related purposes and 35% for private purposes. Paula purchased her car on 1 January of the previous tax year for $43 000 and it had an effective life at the time she acquired it of 8 years. Paula depreciates her car using the diminishing value method. What amount can Paula claim as a deduction for depreciation on the car for the current tax year ended 30 June (nearest $1)? Hint - you must first calculate depreciation for the previous tax year.
Select one: 1. $3465. 2. $9417. 3. $6424. 4. $5331. 5. $6121.
Explanation / Answer
Answer: Option 2. $9417
As in Double Dimnishing value method, in the first tax year, depreciation charged is $10750 but the tax year ends on 30th June and in the question it is written that the car was purchased on 1st Jan so half year's depreciation would be charged.
Double Dimnishing value method: (2/Depreciable life in years)*(Book Value)
Now here:
Depreciable life in years: Total Effective Life
Book Value (Year 1): Value in the books.
Tax Year 1 Depreciation: (2/8)*($43000)= $10750
Depreciation Charged from 1st Jan to 30th June ($10750*6/12)= $5375 (depreciation here would be charged for half year as the tax year is started from 1st July and ends on 30th June and car was purchased on 1st Jan.)
Depreciation Charged in Tax year 2: (2/8)*($43000-$5375)= $9406.25
Which is close to option 2.
So the answer is option 2.