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in dec 2013 q1 , which you worked through in the revision lectures you deducted tax allowable depreciation of $125 million each year which gave you taxable profits and then you calculated tax @ 25 % and then in the end you added back $125 million of depreciation in the cash flows
but in dec 2011 q1 , why isnt the tax allowable deprecition in machinery of 20 million dollars not added back to the cash flows in the end ?
in working 5 of the model answer , tax allowable depreciation of 20000 is deducted from the cash flows each year and there are losses and so it is carried forward each year , and then the taxable profits are calculated and then taxes of 20 % are charged in year 3 and 4 ,
THE tax charged is then added to the cash flows statement and everything is then calculated as follows , but why isnt the depreciation of 20000 added back to the cash flow in the end after calculating the taxable profits …..LIKE how it was done in the dec 2013 q1 exam ?
is there a difference in wording of the two questions of the tax allowable depreciation which i didnt understand ?
the two are links to p4 dec2011
i understood rest of the question , but this tax allowable deprecition of not being added back in the end is bothering me
In the 2013 question, the tax workings are all done in the cash flow workings, the depreciation is subtracted and the tax calculated, and then the depreciation is added back because it is not a cash flow.
In the 2011 question, the tax workings are done separately and then the tax cash flow is put into the cash flow workings. Depreciation was never subtracted in the cash flow workings and therefore does not need adding back.
(Please do not put links to pirate websites as you did – they are illegally hosting copyright material. You really should buy a Revision Kit from one of the ACCA approved publishers – they (legally) contain all relevant past exam questions.)
thank you very much ,
well i do have a revision kit from last year ,i didnt really know that, as these links appear on the first page of google search…any reason why they are copyright ? i dont know why acca removes earlier past papers from their websites …..any reason as they are not that old ? but these past papers were once on the acca websites and they are were for free
and the revision kit providers need to sell their material and so they have a copyright claim ,but these older past papers were once free of charge on the acca websites and what is the use of copyright claim ?,,,,as they were never meant to be sold and the websites that host older past papers are also not selling them….anyway whatever the reason maybe , i wont post any links further
i have another question
in dec 2013 q1 . the questions says a balancing adjustment will be required at the end when sold for 500 mp… and
in year 4 – cv – 750 – 500 = 250 , this 250(which i understood ) is then deducted from year 5 cash flows ,
but can i know what is the difference between balancing allowance and balancing charge? are these two words known as balancing adjustment ?or what do these three mean ?i want to do tax workings separately like the dec 2011 and so the profit before tax for year 5 are as follows for tax workings
year 5
pbt 715.2
TAD (125)
balancing allowance (125) – these two are the the 250 splitwhich gives us taxable profits as 715.2 -125 -125=465.2
but what if the question said there is a balancing charge instead of balancing adjustment? i dont know what the words mean or does a balancing charge mean like the machinery was sold for 800 in year 5 instead of 500 ,this would then mean
750 – 800 =(100) loss , is the 100 loss called a balancing charge ?and how would the loss of 100 be adjusted in the tax workings , would it be added to year 5 as 100 , which would then give taxable profits of 715.2 +100 =815.2
and also 250 is deducted in split of 125 and 125 ,so would the 100 split would be done ?
thanks
The balancing charge or allowance is always the difference between the sale proceeds and the tax written down value. If the sale proceeds are more than the tax written down value then there is a charge, if less then there is an allowance. (If you are still unsure, then do watch the Paper F9 lectures on investment appraisal with tax).
Strictly, in the year of sale, there is no writing down allowance – just the balancing charge or allowance. You will see that in some questions the examiner does have a writing down allowance in the final year, but then the balancing allowance or charge will be different – but the total of the two together will be the same, and that is all that matters for the marks.
(With regard to copyright – the ACCA wrote the questions and so they have the copyright. They give BPP etc permission to use them, because they pay them money for permission. They remove old exams because the syllabus changes and not all old questions are relevant.)
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