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Question doesn’t state if losses can be carried forward or not. Can you explain on both circumstances i.e. Can be carried forward and cannot be carried forward.
Can be carried forward:
does it mean I offset the losses with next year’s gain before calculating taxes on profit? For example, this year’s loss is -60m. Next year’s profit is 300m. Tax rate 30%. So tax for year 2 will be (300-60)x0.3: 72m (tax).How about if it cannot be carried forward? What do we put for the first year’s tax column?
As far as F9 is concerned, there are not losses.
We always assume that the company is already making profits and is paying tax. Therefore if a new project makes a ‘loss’ then all it does is reduce the profit of the company as a whole and therefore saves tax.
Just as an inflow results in a tax outflow, similarly an outflow results in a tax inflow (because tax is saved).
I explain all of this in my free lectures, and I do suggest that you watch them. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well!
Actually I am a P4 student. Just thought that this question is more relevant here. Do you mind explaining what we should do if there is losses in the context of p4?
Also if my understanding of what to do when losses can be brought forward correct?
Thanks beforehand!
The same applies in P4 as I answered above.
The exception (and only in P4) is when the project is a separate company (e.g. in a foreign country). In that case if there is a loss then the tax is zero and the loss is carried forward and reduces the next years taxable profit.
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