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NPV and capital allowance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › NPV and capital allowance

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by AvatarJohn Moffat.
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  • May 15, 2018 at 10:25 pm #452182
    Avatarhumai
    Participant
    • Topics: 757
    • Replies: 248
    • ☆☆☆☆☆

    1)Sir suppose machine was not allowed tax allowable depreciation and NPV on machine came positive e.g 25000, now suppose in another scenario on the same machine tax allowable depreciation was allowed, so the already positive NPV will rise na because of tax savings on capital allowance e.g it will become 30000? right?

    2)Sir suppose machine was not allowed tax allowable depreciation and NPV on machine came negative e.g – 25000, now suppose in another scenario on the same machine tax allowable depreciation was allowed, so the already negative NPV will rise or will it fall because of tax savings on capital allowance? e.g would it become -30000 or would it become -20000?

    May 16, 2018 at 6:52 am #452216
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54846
    • ☆☆☆☆☆

    Tax allowable depreciation makes the NPV higher. Therefore a +’ve NPV will become more +-‘ve NPV will become less negative.

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