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1. For reducing tax allowable depreciation ( TAD ) method for example
Plant cost 3 million
Reducing balance method 25%
Tax rate 30%For first year when we calculate TAD, ITS 3million x 0.25 x 0.3
However for straight line basis
(Same example as above and 3 years)Shouldnt it be 3million / 3 years x 0.3 ?
I do not understand why tax amount is not multiplied in the fubuki co question after dividing into number of years.
Because in TAMPEM reducing balance method, they did multiply with tax rate.
2. Since TAD amount is deducted before calculating taxable profit, shouldnt we suppose to add TAD back ?
3. Why centrally allocated overhead is excluded ? Shouldnt we take into account the whole fixed overhead and increase per inflation rate for each year ?
1. The TAD is straight line. The plant and machinery is sold after 4 years, so we divide by 4 and not by 3 !!
The TAD has been subtracted to get the taxable profit and the tax calculated on that, which is one of the two approaches to dealing with the TAD (both of which obviously give the same answer).
2. The TAD has not been subtracted in the cash flow workings (only in arriving at the tax figure) and so there is nothing to add back.
3. They are never included – the total cost for the firm will not change and so there is no extra cash flow.
It is obvious that you have not watched my lectures, because everything you have asked here is explained in the lectures. You cannot learn for this exam by simply working through past questions without having studied first, and you certainly cannot expect me to keep typing out extracts from my free lectures!
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