Trainco Ltd has the following assets on its balance
sheet:
| Fixed Assets | £ |
| Freehold property | 1,000,000 |
| Net investment in train leases | 5,000,000 |
| Office furniture | 15,000 |
| Computer equipment | 100,000 |
| Vehicles | 80,000 |
| Artworks | 500,000 |
| Total | 6,595,000 |
Calculate the accounting value of plant or
machinery
The
freehold property is used as office premises by
the company. The value will need to be apportioned to determine
what element is attributable to plant or machinery. The building
contains lifts and air conditioning systems; these items are plant
or machinery. The value of this equipment is agreed to be
£300,000.
Trains are plant or machinery; they qualify for plant or
machinery allowances. The
train leases are accounted for as finance leases
and the value of the lease rather than the train itself is shown on
the balance sheet. The net investment in the lease figure is
included in the calculation of the net book value of plant or
machinery. The total attributable to net investment in leases is
£5,000,000.
The
office furniture used in the building qualifies
for plant or machinery allowances and this value is included.
The
computer equipment qualifies for plant or
machinery allowances and this value is included.
The
vehicles qualify for plant or machinery allowances
and this value is included.
The
artworks do not qualify for plant or machinery
allowance (unless it is part of the business to provide ambience
– here it is not). This value is not included.
The total net book value attributable to plant or machinery
is therefore £5,395,000.
Identifying the qualifying leased plant or
machinery
You now need to determine how much of this plant or machinery
is qualifying leased plant or machinery.
All assets except for the artworks and the land value qualify
for plant or machinery allowances.
The
fixtures in the building are not subject to a
plant or machinery lease.
The
trains are subject to a lease.
The
office furniture is not subject to a plant or
machinery lease.
The
computer equipment includes a number of items
which are leased along with the trains. The value of the leased
assets is £60,000.
The
vehicles are not subject to a plant or machinery
lease. They are used by the employees of the company.
Total value of assets subject to plant or machinery leases:
£5,060,000
More than 50% of the assets are subject to a qualifying lease
and so the company is carrying on a business of leasing plant or
machinery.
