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So I was doing this question today and I have a doubt.
I used the tax relief method(after tax has been deducted I put in the relief for the tax allowable depreciation at the taxation rate) instead of adding and subtracting tax allowable depreciation from the cash flows itself.
For the year T1 – technically speaking we would only give tax relief of 1050000(tax allowable dep x 20%) since I thought that the loss we have made is usually set off against future profits (if mentioned in the question) but this time the question stated that Talam Co has other profitable ventures thus tax relief can be claimed from there.
Although when I checked the answer key they had also given tax relief on the loss that the company has incurred in T1.
Can the tutor/someone explain to me why did we give tax relief of 20% on the loss we incurred in T1 even though it is clearly stated that the loss would be set off in other business operations?
Thank you in AdvanceTalam is making sufficient profits from other activities to take advantage of any tax loss relief.
The total tax payable is based on their total profits. So if this project makes a loss then the total profit will be lower and there will be less tax payable by the company as a result.
Doing this project results in there being a saving of tax to the company.
It was quite a simple concept to grab – your extremely simple language made it so much clearer in my head.
Thank you so much tutor!
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