Page 26 - F6 - Capital Allowances - Leases

Solution

Determination of fair market value of equipment

Cost of equipment to Dean Ltd Less: R400 000

Depreciation at 20% a year on reducing balance method .

Year 1 (20% of R400 000) = R80 000 (400 000 – 80 000)

= 320 000 .

Year 2 (20% of R320 000) = R64 000 (320 000 – 64 000)

= R256 000 .

Year 3 (20% of R256 000) = R51 200 (256 000 – 51 200) =

R204 800

Deemed fair market value of equipment at end of initial

lease period