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Foreign investment appraisal

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Foreign investment appraisal

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
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  • December 18, 2019 at 6:43 pm #556183
    unfazed
    Participant
    • Topics: 25
    • Replies: 59
    • ☆☆

    Hello sir,

    In the foreign inv. app. subsection, example 4

    may I know the reasoning behind the decision to ‘double’ treat the royalties? as in we accounted for them both in the actual project calculation and then for James Plc

    Wouldn’t the treatment of royalties once in the project appraisal be sufficient?

    (the extra 5% tax makes sense as the tax rate is 5percent higher in the UK)

    December 19, 2019 at 8:42 am #556204
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    The company in Oblivia is paying the royalties, and therefore when looking at Oblivia they are a cash outlflow, which affects the tax payable in Oblivia and reduces the amount available to remit to the UK.

    Separately, the income of James plc is both the remittances from Oblivia and also the royalty income that they are receiving.

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