# Decline in value: first-year deduction

## Working

Cost = $30,000, effective life = 5 years, 100% taxable use, full year (no part-year apportionment).

**(a) Prime cost method**

```
cost * (1 / effective life)
= 30,000 * (1 / 5)
= 30,000 * 0.20
= $6,000
```

**(b) Diminishing value method**

```
cost * (2 / effective life)
= 30,000 * (2 / 5)
= 30,000 * 0.40
= $12,000
```

## Answer

- (a) Prime cost method: **$6,000**
- (b) Diminishing value method: **$12,000**

## Controlling authority

The decline in value (capital allowance) rules are governed by **Division 40 of the Income Tax Assessment Act 1997 (Cth)** (the "uniform capital allowances" regime). The two methods and their formulas sit in Subdivision 40-B, with the core decline-in-value rules in section 40-70 (diminishing value method) and section 40-75 (prime cost method).

## Approach

I applied the two formulas given in the task directly. With a full year and 100% taxable use, no apportionment factor is needed, so each formula reduces to cost times the stated rate: 1/5 (20%) for prime cost and 2/5 (40%) for diminishing value. The named authority is Division 40 of the Income Tax Assessment Act 1997 (Cth), the uniform capital allowances provisions that control decline in value.