- This topic has 11 replies, 4 voices, and was last updated 10 years ago by
.
- Posts
Well I do 🙂
I guess you want an explanation!!They will be making the decision at the end of year 2, and so Pa is the present value of the flows from year 3 onwards.
The present value of the cash flows are 9,946,500 + 7,064,200 + 3,543,900 = 20,554,600.
In addition there is the PV of land and buildings in year 5 (8,876,000) and the PV of the working capital (1,183,000).
This gives a total of 20,554,500 + 8,876,000 + 1,183,000 = 30,613,500.Hope that helps 🙂
(The only person who replies to questions in this forum is me (it is the Ask the ACCA Tutor Forum). I only reply on here – not by Skype. So please do not give your Skype contact.)
Mr John
Where did the missing 100 go to? the figure of 20,554,600 magically becomes 20,554,500
Is this an example of creative accounting?
Biggles – are you really worried about 100 out of a total of over 30M?
(as you will have seen yourself, the examiner himself write in his answer that it is about 30.6M)
You need more Metaxa 🙂
Thanks, John, i got it for the problem Pa. However, i still have some small problems for this question.
1. the tax on scrap value, in this case, why not charge tax on the scrap value of machinery&land.
2.if Chmura Co. send special packaging material to Mehgam, why this part don’t recognize as Chmura Co.’s cash inflow and showed in the calculation.
3. Could you explain what the bi-lateral tax treaty means here, a little bit confuse..
Thanks and regards,
JUDY 2014.6.181. The question says that market value of the land and buildings is inclusive of any tax impact (so any tax has already been taken into account in the value given)
2. The wording relating to the special packaging is actually a bit unfair. Although Chmura will send the packing to Megham (and the cost appears in the Megham cash flows, which is fine), presumably Chmura has itself to pay for the packaging. So although Chmura will receive $200 a batch from Megham, they will also have to pay their supplier $200 a batch – so the net cash flow to Chmura is zero.
The examiner should really have listed this as one of his assumptions.3. All the bilateral tax treaty means is that tax is not charged twice. Since Megham is paying tax in their country, Chmura will only have to pay extra tax is the tax rate in their country is higher. In this question, Chmura’s tax rate is lower and so there will be no extra tax payable. (If the tax rates had been the other way round, then Chmara would have had to pay an extra 5% tax in their country)
I Often get confused with depreciation and how it should be treat , in this question 125 depreciation allowable was minus before taxation and then later the depreciation was added back.
In a bpp answer only tax saving was added back. ( 31.3)
(6) Tax saving on tax depreciation
Years 1 – 4 1,250 × 0.1 × 0.25 = MP 31.25m per year
Year 5 value c/f = 1,250 × 0.6 = 750
Sale value = 500
Balancing allowance = (750 – 500) × 0.25 = MP 62.5mIs there a difference and can you explain
Thank you
You can do it either way – the final answer will be the same!
I prefer to calculate the tax on the operating flows and the tax saving on the capital allowances separately – it is easier, safer, and quickly.
You might find it helpful to watch the free lecture on this where I do explain the reasoning!
- You must be logged in to reply to this topic.