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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Depreciation treatment in NPV calculation
Hi,
In question Tramont (pilot paper) depreciation is deducted in the tax working (5), while in Question 1 June 15 depreciation is deducted and added back in the NPV table. I am not sure when to add or subtract depreciation ?
Thanks
Depreciation is always subtracted when working out the tax, because the taxable profit is always after subtracting tax allowable depreciation.
If depreciation is subtracted in the cash flow table (it the tax is being calculated there) then it is later added back because it is not a cash flow. However, the current AFM examiner normally states that an amount equal to the depreciation is needed to maintain the non-current assets. In that case we obviously do not need to add back the depreciation.
I explain all this in my free lectures.