Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › APV – Tax shield and Subsidy benefit – Burung Co June 2014
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John Moffat.
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- October 8, 2016 at 6:20 am #342685
Hi Sir,
I have a question on calculation of tax shield and financial effect of subsidized loan in Burung Co June 2014 which I would like to ask for your help.In the answer to the exam question, tax shield is calculated as tax saving arise from actual interest payment (which based on the subsidized interest rate)
PV of Tax Shield = [($42,970,000 x 60% x 0·015 x 20%) + ($42,970,000 x 40% x 0·04 x 20%)] x 3.63I understand that if tax shield has been calculated based on actual interest payment (which based on the subsidize interest rate already) => the calculation of subsidy benefit should not be net of tax relief loss (as this has been accounted for in Tax shield calculation). However, in the answer, the calculation of Subsidy benefit is:
PV of Subsidy benefit = $42,970,000 x 60% x 0·025 x 80% x 3.63This is quite confusing to me. Could you help to explain which way is correct to calculate the tax shield and subsidy benefit?
Thank a lot!October 8, 2016 at 11:39 am #342708The examiners answer is correct.
If you took the subsidy benefit before tax, then you would effectively be recording the tax benefit twice 🙂
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