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Dear John,
I am confused by this capital Allowences treatment.
In Burung Co June 14 why the capital allowences are not included in Base Case NPV calculation..Instead they are deducted in workings to find taxable profit and taxation paid.
Why they did like this ?In fubuki co Dec 2010 in Base Case NPV now they taken the tax benefits on Capital Allowences and added in calculation.
Please explain Why there is difference in treatment of capital allowenece in two Base Case NPV scnerios ?
Thanks.
You are mistaken about Burung. In Burung the capital allowances are included in the base case NPV – that is always the case.
(As always, you can either subtract the allowances to calculate the tax (as in Burung) or you can calculate the tax on the operating flows and then calculate separately the tax saving on the capital allowances (as in Fubuki). But in both cases they are accounted for in the base case NPV).
So it means John In Burung Co we can also calculate Net cash flows( i.e. Incremental Profit) in kit answer and take tax on these NCFs and then add tax saving on capital allowences, just like they did in Fubuki Co. Rite 🙂 i hope the figure will come same .
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