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Sir, I have a silly doubt. Why is the non tax allowable depreciation on Premise (11 million) not taken into account in the answer? I understood the tax allowable depreciation bit but if there is non tax allowable depreciation, shouldn’t we include that prior to finding out our PBT and then not add that back as it is non tax allowable?
If somebody could answer this, it would be of great help!
Thanks in advance!
The TAD has been taken into account in working 1 when arriving at the tax charge.
There is nothing to add back because when arriving at the cash flows each year we have not subtracted the depreciation. If it had been subtracted (as we do in Paper FM) then it would need adding back.
However as I explain in my free lectures it is better in Paper AFM to show the tax calculation as separate workings (because in AFM there are sometimes tax losses which never happens in Paper FM).
Thanks for the response sir, but my doubt was not relating to the TAD of the Machinery, but more so regarding the NON TAD of Premise. Shouldn’t we have to include that in our base case npv workings? i.e deduct depreciation of premise prior to arriving at PBT?
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