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In this question’s part a, why have they NOT included(deducted) tax allowable depreciation from nbv of plant and machinery to arrive at closing figure ?
I mean in 1st year of proforma accounts we have opening nbv of plant and machinery of 1012 we add new assets worth 91 and this (1012+91) is taken as closing figure i.e the plant and machinery value for next year without deducting tax allowable depreciation of 165? Why is that?
thanks
This had me also puzzled for a while 🙂
It is because note (v) of the question says that the net book value of the plant and machinery increases in line with sales. So the 91 is the net book value increase (so we don’t take of depreciation again).
This does not affect the depreciation charge in the Income statement because this is calculated on the net book value.(What is very confusing is that note (v) says ‘investment in, and net book value……’, which I suppose is correct in one sense, but is very confusing!!! Sorry, but this was an examiner from way back – hopefully the current examiner will stay more careful with his wording.)
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