# First-Year Decline in Value Calculations

## (a) Prime Cost Method

**Formula:** cost × (1 / effective life)

$30,000 × (1 / 5) = **$6,000**

## (b) Diminishing Value Method

**Formula:** cost × (2 / effective life)

$30,000 × (2 / 5) = **$12,000**

## Controlling Authority

The decline in value (capital allowance) rules are governed by **Division 328** (for small business entities) and **Division 40** (general rules) of the **Income Tax Assessment Act 1997 (ITAA 1997)**, administered by the **Australian Taxation Office (ATO)**.