# ACC-0006 — First-year decline in value

## Given

| Item | Value |
|------|-------|
| Cost | $30,000 |
| Effective life | 5 years |
| Taxable use | 100% |
| Timing | First used on the first day of the income year (full year) |
| Income year | FY2025–26 |

Because use is 100% for a taxable purpose and there is no part-year apportionment, the deductible decline in value equals the full formula amount for the year.

## (a) Prime cost method

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

**Working:** $30,000 × (1 ÷ 5) = $30,000 × 0.2 = **$6,000**

**First-year deduction (prime cost): $6,000**

## (b) Diminishing value method

**Formula:** cost × (2 ÷ effective life) — the factor 2 is the 200% rate for assets first used on or after 10 May 2006.

**Working:** $30,000 × (2 ÷ 5) = $30,000 × 0.4 = **$12,000**

**First-year deduction (diminishing value): $12,000**

## Controlling authority

The decline in value (capital allowance) rules for depreciating assets are governed by **Division 40** of the **Income Tax Assessment Act 1997** (Commonwealth of Australia). Prime cost is dealt with under the prime-cost formula in that division (notably **section 40-75**); diminishing value under the diminishing-value formula (**section 40-72**), including the 200% rate for eligible assets.

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## Approach (brief)

This was a closed-book calculation using only the figures and formulas in the task. Prime cost spreads cost evenly over effective life (one-fifth per year). Diminishing value applies twice the prime-cost rate to the opening value in the first year (two-fifths of cost). No inputs directory material was present beyond the prompt; the controlling statute was identified from standard Australian income tax capital-allowance structure (ITAA 1997 Div 40).