Balancing charge / balancing allowance definitions

Balancing charge / balancing allowance definitions

• A. BA is a tax profit on disposal; BC is a tax loss on disposal
• B. BA is the proceeds of disposal; BC is the tax written down value
• C. BA is a tax loss on disposal; BC is a tax profit on disposal
• D. BA is balancing adjustments; BC is balancing deductions

Answer: (C)

Balancing allowances and balancing charges come into play when you dispose of an asset on which capital allowances have been claimed. You compare the disposal proceeds with the tax written down value (TWDV). If the sale price exceeds the TWDV, a balancing charge arises—this is a taxable profit added to profits. If the sale price is less than the TWDV, a balancing allowance arises—this provides a tax deduction against profits. So, BA represents a tax deduction on disposal (a tax loss on disposal), and BC represents a taxable amount on disposal (a tax profit on disposal). The correct option reflects this distinction. The other statements mix up what BA and BC represent or relate BA/BC to proceeds or TWDV incorrectly.

Balancing allowances and balancing charges come into play when you dispose of an asset on which capital allowances have been claimed. You compare the disposal proceeds with the tax written down value (TWDV). If the sale price exceeds the TWDV, a balancing charge arises—this is a taxable profit added to profits. If the sale price is less than the TWDV, a balancing allowance arises—this provides a tax deduction against profits. So, BA represents a tax deduction on disposal (a tax loss on disposal), and BC represents a taxable amount on disposal (a tax profit on disposal). The correct option reflects this distinction. The other statements mix up what BA and BC represent or relate BA/BC to proceeds or TWDV incorrectly.