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Can you please assist me in the following queries?
1. Why did the examiner included the scrap value in the tax allowable depreciation. The questions states that, ‘tax allowable depreciation is on the full purchase price.’
2. why was the capital allowance amount of year 5 with the scrap value amount? Usually, we ignore the scrap value amount and calulcate the tax benefit on the balanceing charge amount.
1. The answer does calculate the allowances on the full purchase price.
In the first year the TAD is 25% x 750,000 = 187,500. Therefore the tax saving is 187,500 x 30% = 56,250 (as shown in the examiners answer).
2. We certainly do not usually ignore the scrap amount. We subtract the scrap proceeds from the tax written down value and the difference is either a balancing charge or a balancing allowance.
I do suggest that you watch my free lectures on investment appraisal with taxation. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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