I am solving a question on ARR. The question is on a 5 year investment project, in one of the years, after deducting depreciation from the cash flow, the result is a negative figure, implying a loss. How do I treat it?
And you know ARR is Average Accounting Profit divided by Average Investment.
What happens in a case where there is loss instead of profit?
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Accounting Rate of Return
6y ago#1What are you asking this in the Paper FA forum? It is not in the syllabus for Paper FA!!
You add up all the profit, subtract any losses, and then divide by 5 to get the average.
I am sorry for asking here. In the question, a 30% tax is included and I don't think it is normal to tax a loss.
After deducting depreciation, it will result into profit before tax, and the figure brings a loss (negative amount). Should I still tax the loss?
6y ago#3If there is a loss before tax then there is a tax saving at 30%. So take the profits less tax and take the loss less tax.
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