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Hello sir.
I have a doubt as to why TAD is not added back after the tax calculation?
For example for the first year if I calculated as per the method that u said in lectures, then
PBT = (2,201), I will deduct TAD from this and arrive at taxable loss of -22,201. Tax at 20% will give a 4,440. I would then add TAD 0F 20,000 and again minus increase in WC of 3,600.
The total that I am getting is -22201 + 4440 + 20,000 – 3,600 = 1,361. And this answer is not equal to the one arrived in BPP kit that is -5801.
Please helpPlease do not chase for a reply after just one hour!! We do not sit at the computer 24 hours a day and you are in a different time zone anyway. I always answer within 24 hours and usually sooner than that.
I do actually explain this point on the first page of Chapter 9 in our free lecture notes, and when working through example 4 in the chapter.
Had the investment been in the same country and there were no losses then it is fine to to subtract the TAD, calculate the tax, and then add back the TAD. However the problem here is that the loss of 22,201 will not result in an immediate tax saving. Had it been in the same country then we would assume that the company was already making plenty of profits and therefore a loss on this project would result in a tax saving. Here that is not the case because it is in a different country and the question specifically says that any losses are carried forward against future profits (as is the normal rule in tax). So a tax loss of 22,201 will mean zero tax payable in that year. The loss then reduces the taxable profit in the following year.
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