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The ques states an interest charge of 8% p.a…… 1) does he mean tht he has treated full 4 million as an allowable exp in the main invst appraisal format n den calculated the tax on remainder inflows inorder to get the post tax cash flows? If so how does the rectifying entry of 4(1-0.3) correct it? 2) if bal allow of 12.29 is falling in the 7th tax yr. Why is he writing 30% of it in the 6th yr instead of the 7th yr in the format of invst app?
The question says that interest has been included – it should never be included. So it needs to be added back and the tax saving of 30% removed. That leaves a net 4(1-0.3) (i.e. 70% of 4M.
Why do you say the 7th tax year? The question says the asset is disposed of in 6 years time. It also says that capital allowances are in full in the year of the flow and that there is no delay in tax. Therefore the tax saving occurs in 6 years time (i.e. time 6).
okay…thnx …refering to the 2nd ques…. isnt the 2nd asset/ investment bought after one year i.e 31st of yr 1 n if so da asset’s life is extended to yr 7 thereby deducting 180.71( accumulation of 6yrz written down allowamces) frm 193 (depreciable amount)leaves us wid 12.29 bal allow falling in 7th yr( or the year next to 6)? Plzzzz correct my wrong concept 🙂
It doesn’t say that it lasts 6 years, it says “the capital equipment will be written off and disposed of at the end of year six” i.e. at time 6.
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