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DCF Taxation/inflation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › DCF Taxation/inflation

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
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  • November 8, 2016 at 10:34 pm #348136
    Maria
    Member
    • Topics: 1
    • Replies: 3
    • ☆

    Dear Sir
    With regards to the example 4 in your lecture regarding Inflation in DCF why do we not restrict the capital allowance tax saving to the actual tax liability for the year ? In the example the excess tax saving is increasing the net cash flow figures. For example the first tax liability is £100 with capital allowance tax saving of £175 this has created an extra cash flow of £75 but we don’t physically get a tax rebate of the £75 as we haven’t actually suffered this amount . I understand we might b able to offset this excess £75 against tax from other profits but how do we know there is other profits when preparing a cash flow and isn’t it best to be cautious ??

    November 9, 2016 at 8:46 am #348180
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54682
    • ☆☆☆☆☆

    We always assume that the company is already making profits elsewhere and is therefore paying tax. Therefore there is no tax loss resulting from the project – it simply reduces the existing profit and therefore saves tax. (The company pays tax on total profits, not on individual projects)

    It is an assumption, but is one that we always make.

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