Forums › ACCA Forums › ACCA APM Advanced Performance Management Forums › P5 course notes chapter 16 example1
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- March 28, 2011 at 9:50 am #47914
regarding P5 course notes chapter 16 example 1, can you let me know how you worked out the figures 113, 84, 63, 47, (107) for tax on saving on capital allowed?
thanksMarch 28, 2011 at 10:14 am #80492This is the tax saving on machine investment. The question states clearly that capital allowances are based on reducing balance i.e 25%. Therefore, the figures are as follows:
Year Beginning balance Capital allowance Tax saving
Year 1: 1,800 450 113
Year 2: 1,350 338 84
……
Year 5: 570 570 143However, scrap is $1,000 at the end of year 5, so tax expense would be ($1,000*.25)= $250.
Therefore, tax responsibility of year 5 would be (250-143)=$107
Hope that helpsMarch 28, 2011 at 10:41 am #80493The first 25% is the rate for capital allowances while second one is 25% the rate of tax.When you calculate the capital allowances you calculate the tax saved on that capital allowance. For the next year you subtract capital allowance from the cost of the machine,then calculate the tax allowance on the written down value as follows:
Year1 1,800,000 * 25% = 450,000 * 25% =112,500
2 1800,000-450000= 1350000*25%=337500*25%=84375
3 1350000-337500= 1012500*25%=253125*25%=63,281.25
4 1,012,500-253125= 759375*25%=189,843.75*25%=47,460.94
For year 5 get the total of all capital allowances (450,000+337,500+253,125+189,843.75)=1,230,468.75 & add 1,000,000 which is scrap value,you will get 2,230468.75 then subtract from machine cost of 1,800,000. you will get 430,468.75 then tax this figure at 25%.I hope this will help you.
March 28, 2011 at 1:57 pm #80494Another way:
Year 1: 1800k x 0.25 x 0.25 = 113
Year 2: 1800k x 0.75 x 0.25 x 0.25 = 84
Year 3: 1800k x 0.75x 0.75 x 0.25 x 0.25 = 63
Year 4: 1800k x 0.75x 0.75 x 0.75 x 0.25 x 0.25 = 47
Year 5: Total (1800-100) x 0.25 less tax saved to date (113+84+63+47) = 107 to repayMarch 29, 2011 at 9:03 am #80495thank you all for your help. I understand now.
Lei
April 6, 2011 at 3:58 pm #80496AnonymousInactive- Topics: 0
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Hi,
Example 1:Anybody know the work out of Net cash flow :
Year 2 – 510, Year 3-494, Year 4 -1700, Year 5-(167) and the d.f.rate @5%.Example 2:
NPV = -61 at 15%, anyone know how will be 15%.Thanks,
Fanny - AuthorPosts
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