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Hello there,
I am hoping someone can clarify something for me. I have done several NPV questions that required capital allowances calculations but have come across one that includes details on AIA. I thought that AIA was not taken into consideration what doing NPV?
The figure I have are:
New machinery £1m
AIA available 250K
Straight line basis 25%
tax 30%So I my understanding is correct I would disregard the AIA and just depreciate the machinery at £1m * 25%. Then calculate the tax relief at 30%.
Any help greatly appreciated.
Becky- Topics: 0
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What is AIA?
I think you should take account of the annual investment allowance to the extent that it is available.This will give tax savings of 75000- based on 250000 x 0.3.Depending on the questions or your assumptions this would be discounted by relevant discount factor in your calculation.From this point you should,in my opinion,deal with the remaining balance on machinery account as you would for any other question of this sort using relevant capital allowance information.
mrjonbain is correct. You take into account all allowances that you are told about in the question – the whole purpose is to take into account all tax savings that result.
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