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Dear John sir,
Need your help again! In this question am wondering, why MP1000m is not taxed at 25% of Corporation tax? l mean machinery’s residual value got taxed at 25% tax rate. But wondering why land’s residual value is spared from any taxes?
The question clearly states that both residual values are “inclusive of any tax impact”, which means they are before tax and need to be taxed appropriately. So then why show no impact on land’s residual vale?
The residual value of assets is not taxed (in real life there might be the possibility of capital gains taxes, but they are not in the syllabus).
If the asset had been getting capital allowances (tax allowable depreciation), then there is a balancing charge or balancing allowance in the final year. This is relevant for the machinery because there was TAD but not for land where there were no TAD’s.
If you are unsure about the treatment of capital allowances then do watch my free Paper FM (was F9) lectures on investment appraisal with tax, because this is revision from Paper FM.
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