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August 6, 2020 at 3:47 am
Sir I do not understand why the 240 is deducted from 1000 instead of 800. I thought since 200 of cap allowances is already taken away that only the 800 is taxed. Kindly explain.
John Moffat says
August 6, 2020 at 8:38 am
The 200 is not a cash flow, it is only relevant for calculating the tax.
The tax is calculated on the 800 which is why the tax is 240.
August 7, 2020 at 3:55 am
Please bear with me.
why 1000-240=760? and not 800-240=560?
August 7, 2020 at 8:59 am
For NPV calculations we need the cash flows. Only 800 is taxed which is why the tax is calculated on 800. But 800 is not a cash flow, it is the profit. The depreciation is not a cash flow – the cash flow is 1,000. Think back to statements of cash flows from Paper FA (was F3) or whatever exempted you from that exam.
July 5, 2020 at 8:46 pm
I think year 3 is $13,463
July 15, 2020 at 5:45 am
that is what I got
July 15, 2020 at 7:17 am
Yes it should be 13463 (as is printed in the answer in the lecture notes).
July 5, 2020 at 12:10 pm
Hi Sir Why have we taken the 4th year balances in consideration while calculating the NPV. Because I clearly remember in the past, we have ignored the other periods balances even if they were a part of the periods which are asked in the question.
July 5, 2020 at 3:28 pm
Tax is payable 1 year in arrears and therefore there are tax flows in 4 years time. We never ignore any periods in which there are cash flows!
June 10, 2020 at 9:56 am
In example 4, if the tax-allowable depreciation on a straight line basis over the three year, the allowance balance will be zero at the end of the year 3, then the scrape value 6000 is taxable which will be a cash outflow at year 3?
July 5, 2020 at 3:30 pm
If it was straight line depreciation then there would be a balance charge in the third year which would give rise to a tax outlaw one year later i.e. time 4.
June 4, 2020 at 11:14 am
Plz tell me how to calculate present value?
June 4, 2020 at 11:21 am
I got it, sir ?
June 4, 2020 at 3:29 pm
I am pleased you have got it 🙂
April 1, 2020 at 6:52 am
Thank you very much
April 1, 2020 at 8:54 am
You are welcome 🙂
December 2, 2019 at 10:13 am
Are there marks to show the working of tax saving on capital allowances? As it’s a bit hard to do the working on excel. Could I do it in rough and just enter the values?
December 2, 2019 at 12:06 pm
You could, and would still get the marks if your figures were correct.
However it is better to have the workings in the spreadsheet because if you make a mistake you still get marks for your approach (whereas if you have just typed in the figures and they are wrong, then you get zero for that bit).
December 3, 2019 at 11:35 am
Thank you John 🙂
December 3, 2019 at 1:01 pm
August 5, 2019 at 1:33 pm
Please note that the net cash flow for year 3 should have been 13,463 instead of 13,163 as per presentation.
August 5, 2019 at 2:57 pm
Thank you – I will have it corrected 🙁
August 5, 2019 at 12:32 pm
This video lecture was explicit. Thank you Mr Moffat
Thank you for the comment 🙂
July 25, 2019 at 8:31 am
Hows comes we didn’t get the $1,000 working capital back at the end of the project?
July 25, 2019 at 10:03 am
But we do!!!
It is an inflow at time 3 – the end of the project.
I suggest that you watch the lecture again 🙂
July 27, 2019 at 11:44 am
Apologies, Im an idiot haha
No problem 🙂
May 29, 2019 at 2:57 pm
How to deal with taxable losses if you use TAD instead tax relief ? Many answers to exam type questions deduct TAD & add it back but you may make a taxable loss becasue TAD so high
May 30, 2019 at 8:35 am
In Paper FM we always assume that the company is already making sufficient profits and paying tax. Therefore a ‘loss’ from the new project simply reduces the existing profit and therefore saves tax for the company – there is no tax loss.
December 2, 2018 at 4:47 pm
I hope this is not a silly question. How come the scrap/sale of the asset does not go in the cash flows subject to tax?
January 19, 2019 at 3:18 pm
If you look at the calculation of the capital allowances, you will see that that is where the sale proceeds of the asset are dealt with.
October 11, 2018 at 1:37 pm
Im hoping you are well!
I have worked out Example 4 and seem to have the correct flows and allowances of what you have wrote down but when i add all the net present values up I get to a total of $7101.84 or $7102 rounded up but in the lecture you have $6877 & the answers in the notes is $6695. Is there something I’m doing wrong?
I look forward to your reply.
January 19, 2019 at 1:41 pm
No! there is nothing wrong you did.
Total Net Cash Flows for 3rd year $ 13463 but mistakenly written as $13163.
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