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I’m obviously missing something which is worrying me so please inform me why the ACCA answer has the capital allowance calculation based on 30% instead of 25%. I’ve just completed this question and my tax re capital allowance is different as I used the rate of 25% on a reducing balance basis and used 30% re the tax on the taxable cash flow.
Please help me. Thank you.
Worried ACCA F9 student.
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The working in the answer is OK. Have a look again in year 1:
Capital allowance at 25% reducing balance: 2,000,000 * 25% = 500,000. This is OK.
Tax shield on the C/A of 500,000 @ 30% = 150,000. This is also OK. This is also the only piece of the working that goes to the cash flow table.
This is a confusing topic; I’m sure after you have another look it will make sense.
Thank you Steve Willis. It certainly makes sense 2nd time around. Of course, it’s the tax benefits on the capital allowance I should take to the table. I confused myself with the £125k calculated and the £150k. Hopefully, I won’t make that mistake twice! F9 seems so hard!
Regards
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