• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA Books

Books for Sept'23 ACCA exams : Get your discount code >>

New! Ask ACCA AI Tutor

Post your questions
& get instant answers

Adjusted Present Value

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Adjusted Present Value

  • This topic has 1 reply, 2 voices, and was last updated 3 weeks ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • September 3, 2023 at 4:18 pm #691249
    roxanadone
    Participant
    • Topics: 2
    • Replies: 2
    • ☆

    Hello John,

    While I understood the way you calculated the PV of the tax benefit on debt interest in your example 2 Chapter 12 for the 5 years loan, I’ve seen couple of examples where the calculation is quite different and more complex, something as below. I am trying to understand the reason, the question basically talks about a Bank loan, repayable in equal annual instalments over the project’s life, interest payable at 8% per year:

    Here is the calculation I’ve seen:

    Annual repayment = ($70m/PVA 8% Yr 1 – 4) = ($70m/3·312) = $21,135,266

    Year 1 2 3 4

    Opening balance 70,000 54,465 37,687 19,567
    Interest at 8% 5,600 4,357 3,015 1,565
    Repayment (21,135) (21,135) (21,135) (21,135)
    Closing balance 54,465 37,687 19,567 (3)

    Year 1 2 3 4

    Interest cost 5,600 4,357 3,015 1,565
    Tax relief at 30% 1,680 1,307 905 470
    Discount factor 8% 0·926 0·857 0·794 0·735
    Present value 1,556 1,120 719 345
    Net present value 3,740

    Many thanks,
    Roxana

    September 3, 2023 at 6:14 pm #691254
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53169
    • ☆☆☆☆☆

    Usually the loan interest (and therefore the tax benefit of the interest) is a fixed amount each year.

    However, if the loan is repaid in equal annual instalments (that include the interest) then the equal payment each year is the amount of the loan divided by the annuity factor. Given that this repayment is partly interest and partly loan repayment, the amount of interest each year is changing (it is decreasing) and therefore the amount of the tax saving is changing also.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA Qualification syllabus changes for 2023/24

Need verifiable CPD for 2023? 21 units of FREE CPD on offer from ACCA

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

PQ Magazine

Latest comments

  • kelems on Basic group structures – SPLOCI introduction and example – ACCA (SBR) lectures
  • jcosgrove16 on Double Entry Bookkeeping (part a) – ACCA Financial Accounting (FA) lectures
  • ayeodele on The management of receivables – Change of policy – ACCA Financial Management (FM)
  • Akhil004 on Discounted cash flow techniques (part 2) – ACCA (AFM) lectures
  • HimanshuSingla on Statement of Cash Flows (part b) Example 1 – ACCA Financial Accounting (FA) lectures

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in