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Hi John,
Please at what point do we add tax back? Is it just for lease or we add back when we buy too. At what point do we add back 100% and at what instance do we add back 30%.
Please.Thanks
We ‘add tax back’ when there is a tax saving – either because there is a bigger expense (due to leasing) and therefore a lower taxable profit, or because we have bought a machine and therefore have a tax saving due to the capital allowances (the tax allowable depreciation).
The second bit (i.e. the tax saving due to the capital allowances) applies to any purchase of a machine – not just lease and buy questions.
It is certainly not always 30% – that depends on what the rate of tax is that you are told in the question.
You really do need to watch my free lectures on investment appraisal with tax. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
(If you are not watching the lectures for any reason, then you need to buy a Study Text from one of the ACCA approved publishers and study from that.)
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