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Hello,
In the above named question why is the indirect cost excluded from the cashflow computation? ThanksSome question:
Investment in equipment of 800m depreciates on a straight line basis 4 years and also capital allowance of 50% in the 1st year is available.
Tax rate is 30%.
The total tax relief will be 800/4×30% (for depreciation) plus 800×50%x30% (for allowance)?? They add together giving a large tac relief?
Why in this question the depreciation doesn t give any tax relief? (Only the allowance)
Thank you!
Ts: I assume you are referring to the activity based costs?
Because they are activity based, that implies that they are a reapportionment of existing fixed costs (as opposed to being extra fixed costs).
On that basis – if the total fixed costs for the company are not changing, then they are irrelevant for the decision.libratype:
Accounting depreciation is not allowable for tax. For tax purposes it is replaced by capital allowances (or tax allowable depreciation).
Sometimes, questions state the the accounting depreciation is the same as the tax allowable depreciation, but you cannot have tax relief on both!!!! (Think back to Paper F6).
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