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could you kindly assist me with this question, how was the figure of 17 for depreciation derived? Also how was the figure for new machinery- 68 derived to. moreover the working capital how was it calculated?
in addition to that, the extra tax of 10% and the remittance from B.how was this calculated
The cost of the new machinery is 68 H$ (GBP 4 x 17.04)
Depreciation is 25% straight line. 25% x 68 = 17
The question says that the initial working capital is 35 H$. There is inflation in the first year of 10%, therefore at time 1 they need an extra 10% x 35 = 3.5 (rounded up to 4).
Inflation in the second year is 8%, so at time 2 they need an extra 8% x (35 + 3.5) = 3
and so on.Remittable from B at time 2 = 2.5M units x 5 Bt x 0.25 (0.50profit margin) x 0.7 (after tax) / 4.41 (to convert to pounds) = 0.50
Same workings for the other yearsExtra tax is 10% x taxable profits, converted from $H to Pounds
sir could you explain me as in when do you calculate taxable profits when computing npv questions.
there’s a question of tramont co (pilot paper 2012), when computing the taxation, they have used the taxable profit of 38470 in yr 3 and 94310 in yr 4. how did they get to these amounts. also if there’s any alternative like e.g we could directly calculate the tax of 20% on the profits before tax instead of going through all this process of deducting depreciation and taxable profits?
In future you must start a new thread when you are asking about a different topic or a different question (so that everyone can get the benefit of the answers 🙂 )
If you watch my free lectures then you will see that you usually have two alternatives. You can either calculate the taxable profits (after subtracting the capital allowances), then calculate the tax, and then add back the capital allowances because they are not a cash flow.
Alternatively, you can calculate the tax on the operating cash flows (which are the profits before capital allowances) and then separately calculate the tax savings that result from the capital allowances.Sir why there is no deprectaionin year 1 when the qs says it will start from the beginning of year 2 which is the end of year 1.
Tax is calculated at the end of the year, so the first deprecation is for the second year and the tax is calculated at the end of the second year.
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