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NPV Calculation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › NPV Calculation

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
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  • Author
    Posts
  • December 25, 2019 at 8:22 am #556381
    unfazed
    Participant
    • Topics: 25
    • Replies: 59
    • ☆☆

    Hello sir,

    Is the method for calculation of taxable profits different as compared to previous F9 paper?

    In F9, it’s Sales less V.C, Contibution less fixed costs, which gives us the taxable cash flows, we apply tax rate and then in workings section we work out Tax benefits on TAD,

    In AFM, there’s this extra step of first subtracting the TAD for valuation of taxable profits?

    Can I not do the method which I’ve grown accustomed to through paper FM?

    December 25, 2019 at 1:42 pm #556387
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    You can use the same method as in Paper FM for most questions.

    However, if (as is often the case in AFM) the investment is in another country then there is a problem if there ends up being a tax loss. In Paper FM we always assume that the company is already making lots of profit and therefore a loss on the project (profit less TAD) simply saves tax.
    However if the investment is in another country then it is a separate company and any tax loss means no tax payable but the loss is then carried forward and reduces the taxable profit in future years.

    In addition, the current AFM examiner very often includes this line in the question:
    “An amount equal to the amount of the tax allowable depreciation is required each year for the maintenance of non-current assets.” I explain the effect of this in my free lectures working through example 4 of Chapter 9 of our free lecture notes.

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