Reference no: EM132992411

Question -

Year One X is a student studying at USP's Suva campus. In late January (Jan 28 to be precise) X buys a car, a secondhand Pajero, for $18,000. This is a cash purchase. The cash comes from X's own savings ($6,000) plus a loan from Finco ($12,000). The loan agreement provides that the principal together with accruing interest is to be repaid over 3 years by way of 36 monthly payments of $500. Each monthly payment is agreed to be a blended payment, composed of principal ($333) and interest ($167). Payment is due on the first of each month with the initial payment on March 1.

X uses the Pajero to drive to the campus, attend rugby training, visit friends etc. In December X graduates with a degree in computer science.

Year Two On March 1, X commences a business as a sole trader, trading under the name Computer Services. The business involves providing on site assistance in installing and repairing IT systems. X uses the Pajero as his business vehicle.

In the commercial accounts established for the business X includes as capital invested the Pajero at a value of $20,000. X settles on this figure relying on the expert opinion of a friend who is a valuer in the motor trade.

When not busy in his new business X continues to use the Pajero for personal purposes. This amounts to 20% of the use of the Pajero.

Year Three X continues to use the Pajero as previously.

In November X replaces all 4 tires on the Pajero (the tread on the existing tyres has worn very thin) for $500.

Year Four On Feb 1 X makes his final payment to Finco.

Pajeros use a lot of fuel. X decides his business needs a more appropriate and economical vehicle. On June 1 X purchases a small used Suzuki delivery van for $15,000. A few weeks later (June 20 to be precise) X sells the Pajero for $13,000 and at much the same time buys a used Prius for $10,000. The Prius is for X's personal use. The Suzuki is used exclusively in the Computer Services business.

Year Five X continues to use the Suzuki as previously. On February 28 the Suzuki is stolen and never seen again. The Suzuki is not insured in any way.

Required - Deal with each year in turn. Calculate the deduction/s for depreciation (if any) available to X for each year. Explain your calculations with reference to any relevant provision in the Act and Regulations. Presume X elects to depreciate on a straight-line basis. If any other choices are required state clearly what is your choice and the reason for it. Also deal with any other receipts or expenditures specifically mentioned that may be relevant to X's income tax affairs.