- This topic has 3 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
Dear Moffat,
I noticed that in DCF taxation is calculated on net cash flow rather than profit.
However, from previous studies we know that depreciation is charged as an expense in the income statement in order to get the net profit, which is subject to taxation.Would you mind helping me clarifying this topic?
More over, i noticed that in the exercises working capital is sometimes treated as inflow at the end of the project whereas other times it is not.
Is there an explanation for this?Thank you in advance,
Cheers,
If you watch the free lectures on this then you will see that instead of depreciation we do take into account capital allowances in calculating the tax.
(You should know from F6 that capital allowances replace the accounting depreciation when the tax is calculated)With regard to working capital, it is released at the end of the project. There have been only two exam questions where this did not happen. In one of them the question specifically said that it was not released at the end. In the other one, the question said that the machine would be replaced at the end of its life. This means that they would continue to make the product and that therefore the working capital would still be needed. However the examiner accepted that this was unclear and said that full marks would be given whether or not the working capital was released at the end.
So…in the exam, always release the working capital at the end, unless the question specifically says not to.Thank you Mr Moffat,
I haven’t done F6 yet, hence my confusion. I really appreciate the clarification.
Cheers,
- You must be logged in to reply to this topic.