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@rishabh1993 said:
For Q1 (A) part i used SFA model i dont know to what extent its correct.I also used SFA but limited my analysis to the advantages and benefits.
Yup…you don’t…That’s one of the purpose of the COC used to discount the cashflow. One of the examiner’s comment in the last exams….I can’t remember which also provides clarity
@jparker7 said:
Darex – you subtract the scrap value and then depreciate straight line.I.e. 5m minus 500k, depreciate 4.5m over 4 years equalling a depreciation of 1125 each year.
The tax savings are therefore 338 each year, with the remaining balance on your capital allowance workings being 500k, the resell value when you depart ownership of that asset.
Kadir – Ah makes sense now, though I don’t think I’d want to do that, I’ll just wait and pray on the 1st August!
Thanks Jamie… That was what I did… I was just trying to clarify what Parker said
@jparker7 said:
No because the after tax discount rate given was stated it was the nominal value (I.e. money terms) and was already inflated.We had to inflate the selling price of 29 by 4% each year and also the incremental fixed costs by the other perecentage (5% or 6%).
I imagine the main errors made on this question was:
– Inflating the variable costs, we didn’t have to since they were already nominal monetary value.
– Doing the tax in arrears, the question they pay tax in the year the liability arises.
– Doing a balancing allowance for CA, as it was straight line there was no Balancing Allowance.On the tax savings on capital allowance… Should your depreciation charge not be cost less scrap value divided by useful life? Because, if I used your method above, at the end of the useful life, I won’t have a scrap value. Which I considered in my cashflow. So you expect the tax man to ignore the 500k scrap value at the end of the useful life?
