CFM86240 - Old rules: forex and accounts drawn up in a foreign currency: pre 2005: accounts wholly in a foreign currency: capital allowances on plant and machinery
Capital allowances on plant and machinery
This guidance applies for accounting periods between 1 October 2002 and 1 January 2005
Where an asset is used for the purposes of a business whose profits and losses are to be computed in a currency other than sterling, capital allowances on plant and machinery are also calculated in that currency.
Where the Capital Allowances Act 2001 refers to a specific monetary limit in sterling, for example the £12,000 limit set for expensive cars, FA93/S94A (6) allows companies to use the equivalent amount in the relevant foreign currency when making their calculations.
Example
Daque plc draws up accounts in dollars and claims capital allowances each year on plant and machinery.
In the APE 31 December 2004 the computation is as follows:
| - | $ |
|---|---|
| Pool b/f | 1,852,728 |
| Expenditure | 543,750 |
| Disposals | 233,410 |
| Balance | 2,163,068 |
| WDA 25% | 540,767 |
| Pool c/f | 1,622,301 |
The Case I figure is calculated as follows:
| - | $ |
|---|---|
| Adjusted P&L profit | 1,895,430 |
| less CAs | 540,767 |
| Case I profit | 1,354,663 |
Only now is the amount translated into sterling for the company tax return.
If the company translates its CT profits at the closing rate, and the exchange rate at 31/12/04 is £1/$1.75 the entry for trading profit on the return becomes £774,093.