December 2011 – Q1 (i)

Dear Sir,

Based on the answer,

1. Taxation
Year 1 2 3 4
Profits before tax (2,201) 20,007 80,664 114,310
Tax allowable depreciation (20,000) (20,000) (20,000) (20,000)
Profit/(loss) after depreciation (22,201) 7 60,664 94,310
Taxable profits 0 0 38,470 94,310
Taxation (20%) 0 0 (7,694) (18,862)

In 3rd year, there is an amount of 38,470 of taxable profit, why is this figure used instead of 60,664?

2. Investment
In year 4, there is investment released of 450,000, why is this here and how to get the figure from?

3. Working capital

In the first year for working capital is calculated 3,600 (40,000 x 9%). Why is it using 9% to calculate the first year?

Thanks Sir