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I am still unclear on when to include scrap value into the tax benefit calculation. I depreciated at cost (£1250 per yr), calculating the capital allowance with the final year being 30% on £1250 – £500. Why is this not correct? Many thanks in advance
John Moffat says
Because that is the rule for tax! Have you not watched the free lectures on investment appraisal with tax?
Thank you for replying so promptly. I just watched the lecture but I am still not clear why chapter 8 example 4 includes the scrap value in the WDA calculation whilst in this exam question it does not? am I missing something?
But of course the exam question includes the scrap value the capital allowance calculation.
The saving at time 5 (because of the one year delay) is the tax rate as applied to the tax written down value less the sale proceeds!
I went back to the answer model from ACCA after what you said, and found the keyword: Total “tax-allowable depreciation” = 5,000,000 – 500,000 = $4,500,000. Thank you John. I could have been stuck forever on this!
And thanks for all your wonderful lectures.
Thanks for the comment 🙂
Hi John. Can you guide me how to make clear of putting the inflation to the correct time(year)?
Is it so if the question says In Current Price Term, the inflation starts at time 1?
If so, how does the question will say if the inflation starts at time 0?
You will find this all explained in my free lectures on investment appraisal with inflation. The lectures are a complete free course and cover everything needed to be able to pass the exam well.
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