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Dear Sir
I refer to BPP 163 Hraxin.
I did the straight line tax relief as 3 out of 4 years having the same figure on a straight line with the 4th year a lesser balancing figure while the answer in the notes took my same bulk figure (y1-4)equally divided by 4. Which is correct or are either…..because in real life you can never be sure what the scrap figure will be until the trade in day…..(ask Tyco International trucks about that)BPP have simply copied the examiners answer, which was wrong.
Tax depreciation is always calculated on the original cost, with a balancing charge or allowance in the year of sale (as explained in my free lectures).
It is only for accounting depreciation (which is irrelevant for NPV’s) then the estimated scrap proceeds are taken into account.The examiner accepted this and stated that people would get full marks whichever way they treated the depreciation (even though the strictly correct way is to calculate it on the original cost).
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