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Hi, for sample answer part (a), under subsidy, the benefit is calculated as $80m x (0.08 – 0.031) x 70% x 3.312 = $9,088,128.
Please may I know why there is no tax relief lost to be calculated as $80m x (0.08 – 0.031) x 30% x 3.312 = $3,894.912, since Amberle Co has enjoyed the borrowing cost reduction of 0.08 – 0.031 = 0.049 (4.9%)? The tax relief lost is calculated in Q.22 Tippletine’s subsidy benefit.
Thank you.
It is because the tax relief has only been calculated on the actual interest.
Sorry, I can’t understand what you mean by that? Would appreciate if you would elaborate more. Thank you.
In some answers the examiner calculates the tax relief ion the interest at the normal rate, and then the tax relief lost is calculated separately due to the subsidised rate. In other answers the examiner just takes the tax relief on the subsidised rate and ends up with the same result.
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