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Hi, can you help with how to calculate capital allowances for NPV in investment appraisals I have some knowledge but haven’t got hang of it properly.
Regards
In F9, the examiner always gives the capital allowance rule, and usually they are 25% reducing balance. So in the first year the allowance is 25% of the cost. This reduces the written down value, and in the second year the allowance is 25% of the written down value, and so on.
You do this every year except for the final year. In the final year you do not calculate 25%, but simply subtract any scrap value from the written down value. The amount left is the allowance (balancing allowance). If the scrap is more than the written down value, then the difference is a charge (balancing charge).Have you watched my lecture on this?
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