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AGD Co (12/05) BBP exam kit question: Buy or Lease

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › AGD Co (12/05) BBP exam kit question: Buy or Lease

  • This topic has 5 replies, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • August 21, 2016 at 1:54 pm #334370
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Sir,

    When calculating the NPV of cash flow in “Buy” option taxation has been included as saving as well as the Tax on capital allowance.

    Am I right to say that when calculating the “Buy”option only the capital allowance taxation should be considered?

    Cost of Machine 320,000
    Annual cost 25,000
    Tax 30%
    Depreciation reducing balance 25%
    Scrap value 50,000
    tax pay one year in arrears
    Project 3 years

    Book answer:

    Cost: as above (no problem with those)
    Taxation for year 2 year 3 and year 4 8 each year (why???)
    Tax allowable dep year 2 = 24 / year 3 = 18 and year 4= 39 (no problem with those)

    I don t understand why the 30% tax on 25000 has been included as saving

    Could you please help?

    Thanks in advance

    Gabriella

    August 22, 2016 at 5:46 am #334433
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    They pay costs of 25,000 a year – this will reduce whatever their existing profits are and will therefore mean will pay less tax than they currently are paying. So a tax saving as a result of 30% x 25,000 = 7,500 (which the examiner has rounded to 8,000)

    August 22, 2016 at 9:06 am #334475
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Sir,

    Thanks for your explanation.
    I have another question

    Let say that I have to calculate the sensitivity of variable cost (10,000) and contribution (7,000) tax @ 30%.

    Am I right if I calculate as below:

    PV of variable cost is 7,000 (10,000- 3000 tax saving)
    PV contribution is 4900 (7000 – 2100 tax paid)

    Thanks in advance
    Gabriella

    When calculating the

    August 22, 2016 at 10:35 am #334490
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    In future, you must start a new thread when you are asking about a different topic.

    Yes – you are correct 🙂

    August 22, 2016 at 12:29 pm #334516
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Sir,

    Sorry about that and thanks for your reply.
    Gabriella

    August 22, 2016 at 3:01 pm #334535
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
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