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QUESTION 1 (5 MARKS) Furnaces Pty Ltd was advised by a local building inspector that one...

QUESTION 1 (5 MARKS)

Furnaces Pty Ltd was advised by a local building inspector that one of the chimneys on its premises was unsafe and, unless it was repaired, the factory would have to be closed. Furnaces decided that it was not feasible to stop operations to repair the chimney, so they gained permission to build an alternative chimney adjacent to the old chimney, thereby allowing production to continue. They found that although the new chimney was substantially the same size and make as the old one, it was cheaper to build than it would have been to repair the old one. Also, the new chimney can better ventilate the weather, which was not available in the previous one. After the new chimney was erected, the old chimney was demolished. Is any amount allowable as a deduction for the cost of the new chimney?

Can you please answer with the reference. than you.

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It was a capital expenditure. It was to be added in the asset list. It should not be deducted or reduced from any other costs. The demolition expenses of old chimney can be treated as expenses. It can be expenses related to old asset.

Therefore no allowable deduction is allowed as deduction for the cost of new chimney.

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    Furnaces Pty Ltd was advised by a local building inspector that one of the chimneys on its premises was unsafe and, unless it was repaired, the factory would have to be closed. Furnaces decided that it was not feasible to stop operations to repair the chimney, so they gained permission to build an alternative chimney adjacent to the old chimney, thereby allowing production to continue. They found that although the new chimney was substantially the same size and make as...

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