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ACCA F9 lectures ACCA F9 notes
February 17, 2016 at 11:56 pm
I have two questions;
1) If the project is acquiring a company, will we still calculate a balancing charge/allowance?
2) My capital allowances on NCAs are (in millions) :
2016 – £351.96
2017 – £326.40
2018 – £316.61
Both tax payments and capital allowance claims occur one year in arrears.
I’m confused as to when will the first tax saving occur?
The project life is 2016-19.
John Moffat says
February 18, 2016 at 7:32 am
You must ask this sort of question in the F9 Ask the Tutor Forum, and not as a comment on a lecture.
February 18, 2016 at 5:01 pm
My apologies, will do so.
November 14, 2015 at 3:25 pm
Thank you for a wonderful lecture Sir. This may sound a bit silly but I am failing to understand why the tax saving only starts in year 2. This is my thinking,we bought the machine in Year 0. at the end of which we will calculate the capital allowance. however the tax is to be paid in arrears so we will make the saving at the end of year 1.
In any case I thought to say the tax is on the net operating cashflows. Tax on the first year flow will be paid in year 2. Therefore we can match the saving to the operating flows. Is it a logical assumption, would it prove true in any other situation?
November 14, 2015 at 3:47 pm
There is no such thing as year 0. It is time 0, and time 0, time 1 etc are points in time that are 1 year apart (so that we are able to discount in whole years).
Time 0 is the start of the first year.
Time 1 is the end of the first year – because it is one year later (we are not bothered about the odd day).
Time 1 is also the start of the second year (again, we are not worried about the odd day when is comes to discounting).
Time 2 is the end of the second year and the start of the third year.
And so on…..
For operating flows (revenue and expenses) we always assume (unless the question says different) that they occur at the ends of years.
So the first years revenue is at the end of the first year – which is time 1.
For capital allowances, the initial investment is at the start of the first year (time 0).
The first allowance will be calculated at the end of the first year (time 1). If the question says that tax is payable immediately, then the tax effect will therefore also be at time 1.
However, if the question says that there is a 1 year delay in tax, then although the allowance will have been calculated at time 1, the actual tax effect will be one year later at time 2.
November 17, 2015 at 6:47 am
Crystal. Many thanks Sir.
November 17, 2015 at 8:25 am
You are welcome 🙂
March 20, 2016 at 6:29 pm
Had the same issue and question, now it’s clear, thank you!
March 20, 2016 at 7:53 pm
October 31, 2016 at 8:14 pm
Same issue for me to, understand perfectly now!
July 27, 2015 at 11:55 am
since the asset is being sold at the END of the 2nd year, shouldn’t we calculate capital allowance for the 2nd year before calculating the balancing charge/allowance???
July 27, 2015 at 3:45 pm
I don’t know whether or not you have taken Paper F6 (UK tax), but the tax rule is that there is a writing down allowance each year except for the year in which it is sold – in the year it is sold there is only the balancing charge or allowance.
(However, if you do take writing down allowance in the final year, and then calculate the balancing charge/allowance (which will obviously be different) then the net affect will be exactly the same and so you would still get full marks in the exam. Have a try and you will see what I mean 🙂 )
July 27, 2015 at 4:38 pm
Yes you are absolutely right, net effect is the same, interesting. Anyways thank you so much sir!
March 14, 2015 at 9:27 am
do I need to show working for CA and tax saving on it?
March 14, 2015 at 9:31 am
If you are certain that you have got it correct, then no.
However it is safer to show workings because if you are doing it correctly you will still get most of the marks even if you make a silly mistake. If you have no workings and make a silly mistake then you get no marks at all for the bit of the question.
May 18, 2014 at 2:28 pm
My question is off-the example! Assume that there is no scrap value, so we have to multiply the balancing charge i.e, figures less no scrap value = figures multiply by corporate tax?
May 18, 2014 at 3:47 pm
Yes – the rule stays the same. If there is no scrap value then it is the same as the scrap value being zero (the same as in Paper F6 for ‘special’ items).
(However, it is a balancing allowance not a balancing charge – there is only a charge if the scrap is more than the tax written down value.)
May 18, 2014 at 3:58 pm
May 12, 2014 at 12:17 pm
ok if there is no scrap value = then 0, ok I understand. BUT suppose after getting $750 C.A what will be the next procedure to calculate the C.A for the next year( if we have another year)? Do I have to multiply 30% will $7500?
May 12, 2014 at 4:39 pm
The question says that the capital allowances are 25% reducing balance.
So the first capital allowance is 25% x 10,000 = 2,500. The tax saving is therefore 2500 x 30% = 750.
The second capital allowance is 25% x (10000 – 2500) = 25% x 7500 (the reducing balance) = 1875 and the saving will be 30% x 1875 = 562.5, and so on.
May 13, 2014 at 8:20 am
ok I already have figured this confusion out by your next lecture to this one.
April 22, 2014 at 4:35 pm
Respected Sir John
I did not find error in your OT notes regarding this question , is this video very old? seems you already rectified your error in your notes.
April 9, 2014 at 3:00 pm
Sir, Your lectures are excellent I owe you a lot ..
But with regard to TAX SAVINGS ON DEPRECIATION Pl clarify me with foll.. IF STRAIGHT LINE METHOD is followed with SCRAP VALUE at end is a) = asset value @beginning of last yr b)> asset value c)< asset value [ treatment in the operating & terminal flow heads]
I would appreciate if you could explain these scenarios with example…
April 9, 2014 at 3:37 pm
I am not exactly sure what you mean.
I will give an example but if you mean something different then ask again 🙂
Suppose that the cost is 100,000, it lasts 4 years, with scrap value of 10,000
With straight line depreciation for tax purposes, it will mean dep’n of 90,000/4 = 22,500 per year. If tax is 30% then the tax saving will be 30% x 22500 = 6750 per year for 4 years.
There would be no balancing charge or allowance at the end because the total tax depreciation will be equal to the fall in value.
(It is unusual for the examiner to have straight line depreciation – it is almost always reducing balance. Also, if it is straight line, then there will almost certainly be no scrap value.)
April 9, 2014 at 5:01 pm
Sir what happens to PROFIT / LOSS on sale of an asset and its TAX implications.
In the above ex: at end of 4th yr asset value is NIL but sold for 10,000
April 9, 2014 at 5:10 pm
At end of 4th year the asset value is not NIL !!
4 years depreciation at 22500 per year reduces its value to 10,000.
There is no profit or loss on sale.
(And profit or loss itself is not what is relevant – it is the balancing charge or allowance that is relevant (from Paper F6). Here, as I explained, there is no balancing charge or allowance.)
April 9, 2014 at 5:23 pm
Ya got it.. ..Thanks sir
You are THE BEST !! —
April 9, 2014 at 5:41 pm
Great (and thanks!) 🙂
November 30, 2013 at 6:51 am
Sir, I was solvong a question on June 08 diet question 4- SC co. I observed that the capital allowance was deducted from the operating casflow and also added back in the capital cashflow. I do not understand why it is. Pls help
November 30, 2013 at 11:10 am
You can deal with the tax in two different ways – they both give the same end result.
Here they have worked out the taxable profit by subtracting the capital allowances, then worked out the tax, and then added back the capital allowances because they are not a cash flow.
The other (easier) way, is to calculated the tax on the flows before capital allowances, and separately calculate the tax saved on the capital allowances.
The end result is the same either way.
July 31, 2016 at 6:12 am
I do the approach of subtracting the capital allowance to the taxable profit and then add back but the result is difference in case the Operating cash flow before depreciation is negative?
Can you explain more?
Thank you so much
July 31, 2016 at 8:41 am
But I do explain this in the lecture.
We assume that the business is already making profits (and therefore paying taxes) from other investments.
So if the extra project being considered makes a ‘loss’ it is reducing the profit already being made and therefore saving tax.
So the workings stay the same in all cases.
November 26, 2013 at 11:02 am
I dont know why. But I am used to of wrongly calculating Capital Allowance in Reducing Balance method as =[(Cost – Scrap Value) x 25%(e.g)] .. Is there any way capital allowance is calculated with this, other than if asked by the question?? Thanks
November 26, 2013 at 11:09 am
It is never calculated this way!!
Reducing balance (as in financial accounts) is a percentage (usually 25%) of the written down value, with the first year being a percentage of cost.
November 23, 2013 at 4:47 pm
I have always had issues regarding the timing of CFs. And, in this question, it says “It is considering the purchase of a new machine on 1 January 2003 at a cost of $10,000.”
So, how come we consider that the machine was bought in Year 0 instead of Year1? Shouldn’t we consider that the machine was bought in January Year 1 and the first operating cash inflow was incurred in the end of Year 1? Then the results would be different. Please explain. I wish there were more lectures on timing because I am still kind of confused with it.
However, Thanks to you, I understood the Tax part very well 🙂
November 23, 2013 at 5:05 pm
The reason timing of flows is important is because of discounting.
If you buy a machine on the first day of a year, and get the first income at the end of the year, then there is virtually 12 months between the flows and one years interest needs accounting for by discounting, the fact that both flows might be in the same calendar year is not relevant.
So it is not ‘year 0’ or ‘year 1’. It is time 0 and time 1 – the are points in time that are one year apart from each other.
November 23, 2013 at 6:00 pm
Thanks alot for the explanation. Now I got it 🙂
October 29, 2013 at 7:59 am
Thank you sir. actually i am student of cima and now i listen full lecture .great work sir thank you a lot..
October 29, 2013 at 8:20 am
October 29, 2013 at 6:31 am
capital allowance is 25% p.a 100000*25%=25000?but why take 20000 instead of 25000?
October 29, 2013 at 7:25 am
You are watching a little introductory example to explain how we deal with tax in F9 – just showing the different layout from F6.
Capital allowances are based on the cost – not on the profits!
If you watch the full lecture and see how I work through example 3 you will see what I mean.
(Because the introductory example was just to explain the tax layout, the 20000 was an invented figure because we did not know the cost of the machine. Again, capital allowances are calculated on the cost, not on the profit)
September 15, 2013 at 12:34 pm
I can’t download video rectures. I don’t know how and where to click to prompt the download
September 15, 2013 at 12:36 pm
The lectures are not downloadable – only the course notes.
September 15, 2013 at 12:40 pm
September 10, 2013 at 5:51 pm
Hi Mr John,
Thank you, very clear indeed. Just quick question with regards to calculating the capital allowances in the last year (year of disposal). I remember from my F6 studies that in the last year, when calculating the balancing allowance/charge, what we do is that we deduct the lower of cost or sales proceed from the remaining balance, does this apply to F9? Or do we only deduct the sales proceed /no deduction at all if there is no scarp, but we don’t deduct the cost (if) it happens to be lower from the sales proceed? Hope it is clear.
September 10, 2013 at 6:16 pm
Oops, I meant proceeds not proceed!
September 10, 2013 at 9:59 pm
In F9 you subtract the proceeds from the tax written down value and the difference is either a balancing allowance of a balancing charge.
September 11, 2013 at 7:03 am
It is more simplified then – Thanks Mr John for the prompt responses from your side, much appreciated.
August 28, 2013 at 2:01 am
August 28, 2013 at 2:00 am
December 1, 2012 at 8:13 am
Why are operating cash flows assumed to be equal to profit before depreciation? The tutor had mentioned that there would be diffrerences such as late paid receivables aso., these were not taken into account. Thanks!
August 28, 2013 at 10:26 am
In F9 we only adjust the profit directly by the depreciation.
However, receivables etc are effectively taken into account by the way we deal with working capital. We need to deal with this separately the way we do because receivables etc do not affect the tax liability.
November 13, 2011 at 10:05 pm
very good and thorough
September 23, 2011 at 9:05 pm
yes, he is a great lecture,10 times better than the one i had at university before. Thank you very much open tuition.
June 30, 2011 at 11:57 pm
Sorry about making comment above. The tutor did mention it at the end of lecture. He is brilliant !
May 20, 2011 at 8:19 am
I found it is really easy to understand.
The format will be applied to get mark in the exam.
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