- This topic has 2 replies, 2 voices, and was last updated 4 years ago by
.
- Posts
sir if issue costs are not deductible for taxation purposes, then we use net receipts from debt for calculation of tax shield on interest payments, right? but if they are allowed then we use gross receipts for calculation of tax shield on interest payments.
Would be grateful to you if you could corroborate my understanding of the topic!
or that tax shield on interest payments will always be calculated on the gross amount of debt raised, regardless of whether issue costs are tax allowable or not?
It is not a question as to whether or not the issue costs are tax deductible.
The issue is at to whether the issue costs are payable out of the debt raised (in which case the amount needed for investment needs grossing up to calculate the amount borrowed and therefore the interest payable) or whether the issue costs are payable out of existing funds (in which case the amount borrowed is just the amount needed for the investment).
Sometime it is not clear in the question as to which is the case, if this happens then state clearly your assumption (as always necessary in Paper AFM for most questions) and you would still get the marks.
- You must be logged in to reply to this topic.