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I have a question regarding the tax allowable depreciation and taxation.
As far I know from FM, we calculate the taxation based on the operating profit.
The operating profit is arrived by deducting all the relevant operating costs. This excludes the depreciation since it is a non-cash flow item.
However, in this question, the examiner has deducted the TAD (I assume the depreciation) to arrive at the operating cash flow?
Then the taxation is calculated based on the operating cash flow LESS the TAD.
The TAD is added back after taxation. I do agree with this, since it is a tax relief to the company.
But can you explain the taxation part. I am so confused.
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