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Dear sir,
I had some doubts.1. Sorry if this has been asked before, but what is the difference between tax allowable depreciation and capital allowance?
Am I right in saying that tax allowable dep is added and subtracted from taxable profits, and tax saving on capital allowance is only added?
This is confusing.2. In a qn with hedging ( like J14’s CMC Co), where we have to calculate lock – in rates, we don’t calculate gain or loss on futures right? (whether currency or interest)
On the other hand, is it the same case with options? Do we calculate gain or loss on options? Or just the premium?
Thanks
1. Tax allowable depreciation is another name for capital allowances – they are the same thing.
You really need to watch my free lectures on dealing with tax (and if necessary the relevant Paper FM (old F9) lectures as well, because the rules are the same.2. When using lock-in rates, the lock-in rate already takes account of any gain or loss on the futures – we don’t calculate it separately.
With options, there is never a loss (if there was going to be a loss then they would not be exercised!!). If they are exercised then you do need to calculate the gain (and the premium is always payable whether or not exercised).
Again, this is all explained in detail in my free lectures on foreign exchange risk management and on interest rate risk management.
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