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When calculating tax savings using straight line depreciation, will both of the following methods get full credit?
1) ((cost – scrap value)/useful life) * tax rate
2) (cost/useful life) * tax rate
When the question specifies that tax will be paid in arrears, you should calculate the balancing allowance. The balancing allowance is the difference between the initial cost of the asset and the sale proceeds. It is used to determine the tax relief in the final year.
However, if the question mentions that tax is payable on the same day the transaction occurs, and the tax relief is based on a straight-line method, you would use the same value of tax relief for all years.
So you have to calculate
560 / 5 = 112 * 20% = 22.4 for year 1-4 as tax in arrears it’s periods 2-5Then in the 5th yr?The wdv = 112?RV = 60?So the bal allow is 52 * 20% = 10.4 for period 6
sir i seriously cant understand this here in this q we arent taking scrap value
in hawker co sept dec2021 paper they have done 34000-14000/4x 0.2, even though both these question look the same to me
Because it says
The vehicle could be purchased for $34,000 using a bank loan with an after-tax cost of borrowing of 4% per year. The vehicle would have a useful life of four years and would have a residual value of $14,000 at the end of that period. Straight-line tax-allowable depreciation is available on the vehicle.
So ((cost – scrap value)/useful life) * tax rate34000-14000/4x 0.2
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