Free ACCA & CIMA online courses from OpenTuition
Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams
December 2023 - June 2024 exams: Get your discount code >>
November 26, 2023 at 2:07 pm
If in any question, it is mentioned that the production and sales are expected to increase by 2.5% per annum, then are we supposed to make this adjustment as from year 1 or year 2?
John Moffat says
November 26, 2023 at 8:08 pm
It depends on the rest of the wording (whether you are told the amounts at current levels are at the levels in the first year).
March 15, 2023 at 5:32 am
Sir as the capital allowances is getting nullified. So, if we do not take that into our calculation it will be correct or not
March 15, 2023 at 9:22 am
They are not getting ‘nullified’ and it certainly will not be correct if you leave them out of the calculation!!
It may help you to watch our Paper FM lectures on ‘investment appraisal with taxation’, because this is revision from Paper FM.
October 13, 2022 at 1:25 am
Hi John, why aren you deduct fixed Overhead cost to calculate taxable profit. i understand we dontt deduct fixed overhead to calculate net cash flow. but to arrive at taxable profit, we can include fixed overhead?
October 13, 2022 at 5:58 am
It is only any extra fixed overheads that affect the extra cash flow, and only any extra fixed overheads that will affect the profit and therefore the tax.
November 19, 2023 at 6:49 pm
Doesnt it result in a benefit an inflow
November 19, 2023 at 6:50 pm
Just the same way capital allowances do
August 20, 2022 at 3:11 pm
Hi Mr John, First of all thanks for such amazing lectures.
I had a doubt in the depreciation calculation. In the question we had the machinery for 5 years right?
So should the year 5 depreciation of 142 (calculated at 25% of 570 ) also be deducted from the WDV before adding the scrap value?
Thanks in advance.
July 14, 2022 at 7:12 pm
Hi Thank you for the great lecture. I have one question: have we used this bit of information: Fixed overheads of the company currently amount to $1,000,000. The management accountant has decided that 20% of these should be absorbed into the new product. Thank you in advance for the clarification.
July 15, 2022 at 8:38 am
Fixed overheads are only relevant if the total amount paid by the company changes because of doing the new project. Simply absorbing (charging) the overheads in a different way between projects for accounting does not mean that the total being paid is changing, and so is not relevant.
January 19, 2022 at 3:05 pm
sir, it was confusing to subtract the tax on capital allowances and then add them back again. i think in paper FM it was a bit straight as we calculated the tax savings on the capital allowances and tax on net operating flow. i tried and it is giving the same answer as your computation here. i find the FM way easier and time saving. thanks john.
January 19, 2022 at 3:41 pm
Either way is fine in this question. Where there can be a problem is if the investment is in another country (as is often the case in AFM). If there is a loss then there will be no tax in the year of the loss, but the loss will be carried forward to reduce the taxable profits in later years.
January 22, 2022 at 10:47 pm
Fast forward to the 19th minute and listen to him carefully
March 14, 2022 at 8:35 am
Waryaa bal waran.
January 1, 2022 at 7:55 am
Hi John, Could you explain why tax savings on the WDAs were not included in the computation?
January 1, 2022 at 9:54 am
They are included!!! The tax has been calculated on the profit less the capital allowances.
August 22, 2021 at 7:42 pm
Hi John. For material expenses in the first example, why do we take the amount post-inflation? As we will start spending on materials and labour immediately and therefore should consider the current prices.
August 23, 2021 at 6:10 am
Although in practice prices are likely to increase little by little throughout the year, in exam questions we always assume that the current price is the price this year (before the investment has been made) and that the price next year (when the project has been started) will be higher by the rate of inflation.
June 23, 2021 at 12:02 pm
If tax is payable immediately, could you briefly explain why no capital allowances are claimed in the year the machinery is purchased to generate an operating loss? I somewhat get it, but a definitive answer/rule would be welcomed.
June 23, 2021 at 1:44 pm
I assume that you are referring to example 1, in which case there are capital allowances in the first year of 25% x 1,800 = 450, which result in a tax saving of 450 x 25% = 113 at time 1.
Just as in Paper FM, we assume that the company is already making profits and is therefore already paying tax. If the project generates a taxable profit then there is extra tax payable, whereas if the project results in a taxable loss then the company as a whole makes less profit which results in a tax saving due to the project.
We always assume this except in two circumstances. One is obviously if the question specifically states otherwise. The other, more importantly, is if the project is in a different country. In that case tax is payable in the other country and if there is a tax loss then the loss is carried forward against future taxable profits. I do explain this in one of the later lectures in this series.
You must be logged in to post a comment.