I have a question regarding the tax allowable depreciation and taxation.
As far I know from FM, we calculate the taxation based on the operating profit.
The operating profit is arrived by deducting all the relevant operating costs. This excludes the depreciation since it is a non-cash flow item.
However, in this question, the examiner has deducted the TAD (I assume the depreciation) to arrive at the operating cash flow?
Then the taxation is calculated based on the operating cash flow LESS the TAD.
The TAD is added back after taxation. I do agree with this, since it is a tax relief to the company.
But can you explain the taxation part. I am so confused.
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Chmura D13
6mo ago#1Although the TAD is not a cash flow, it is allowable for tax.
So the tax is calculated after the deduction of the TAD, but in arriving at the cash flows it has been added back because there is not net cash flow.
If you are still unsure then you can find a lecture working through the whole of the question by scrolling down the following page:
https://opentuition.com/acca/afm/afm-revision-lectures/
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