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I’m asking this because I thought on a straight line, it was calculated as cost-residual value/useful life x tax rate.
So 1 million with no RV and tax rate 30% should be calculated as 1000000/4×30%= 75000. However, in SC Co question 4 or 5 June or December 2008, the allowance that they included in NPV calculation was 2500000 (allowance) which is simple depreciation with multiplying it by tax rate. Isn’t that wrong? If not, could you please explain it to me?
I don’t remember the exact question number or session but if you google “SC Co ACCA F9” then the answer will come up and scroll down to 4 or 5 in the question paper. Thank you!
We are not calculating depreciation for the accounts, but for tax purposes and we use tax rules as per Paper TX. The tax depreciation is calculated on the initial cost, and any sale proceeds result in a balancing charge or allowance at the end of the assets life.
I explain all the rules in my free lectures on investment appraisal with tax.
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