ST has $20,000 of plant and machinery which was acquired on 1 April 20X0. Tax depreciation rates on plant and machinery are 20% reducing balance. All plant and machinery was sold for $12,000 on 1 April 20X2.

ST has $20,000 of plant and machinery which was acquired on 1 April 20X0. Tax depreciation rates on plant and machinery are 20% reducing balance. All plant and machinery was sold for $12,000 on 1 April 20X2.

Calculate the tax balancing allowance or charge on disposal for the year ended 31 March 20X3 and state the effect on the taxable profit.
A . A balancing allowance of $800 will increase taxable profits.
B . A balancing allowance of $800 will reduce taxable profits.
C . A balancing charge of $800 will increase taxable profits.
D . A balancing charge of $800 will reduce taxable profits.

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Answer: B