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Hi John,
I cant figure it out,kindly clarify about the WDA being subtracted first and then added back normally we just add it back after deducting tax from operational cash flows and why isnt WDA in arrears when tax is.
Regards,
FurqanThere are two ways of dealing with capital allowances, and the examiners answer shows both ways (they both obviously give the same answer and either way is acceptable).
One way is to calculate the tax on the cash flows (before capital allowances) and the separately calculate the tax saving from the capital allowances.
The other way is to subtract the capital allowances from the cash flows to get the taxable profit, then calculate the tax on the taxable profit, and then add back the capital allowances because they are not a cash flow.
The capital allowances themselves are never in arrears – it is the tax saving on them that is in arrears if the tax on profits is in arrears.
Have you watched my free lectures on this?
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