# ACC-0006 Response: First-Year Decline in Value Deduction

## Part (a): Prime Cost Method

Using the formula: Decline in value = Cost × (1 / Effective life)

- Cost: $30,000
- Effective life: 5 years
- First-year deduction = $30,000 × (1 / 5)
- First-year deduction = $30,000 × 0.2
- **First-year deduction = $6,000**

## Part (b): Diminishing Value Method

Using the formula: Decline in value = Cost × (2 / Effective life)

- Cost: $30,000
- Effective life: 5 years
- First-year deduction = $30,000 × (2 / 5)
- First-year deduction = $30,000 × 0.4
- **First-year deduction = $12,000**

## Controlling Authority

The decline in value (capital allowance) rules are controlled by the **Income Tax Assessment Act 1997 (Cth)**, specifically Division 40 (Capital Allowances). Division 40 sets out the rules for claiming deductions for depreciation of depreciable assets, including the prime cost and diminishing value methods, and the application of the 200% rate for assets first used on or after 10 May 2006.