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Dear Tutor,
in the Sample March/June 2016 exam, Question 2 (a) states:
One such asset is a piece of land, which is currently used for farming. The fair value of the land if used for farming is $5 million. If the land is used for farming purposes, a tax credit currently arises annually, which is based upon the lower of 15% of the fair market value of land or $500,000 at the current tax rate. The current tax rate in the jurisdiction is 20%The FV is 5m+(0,5m x 20%)= 5,1 m
I don’t understand why the FV is not increased by 0,75m (5mx15%) as this is lower as 0,1m.
Thank you.
Hi,
I think the lower is the $0.1 million, being the 20% of $500,000. If we take 15% of the $5 million then we have $0.75 million, which is higher than the $0.1 million.
Thanks
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