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Sir,
I refer to Romage (FS 6/00), part (b).
Could you please throw more light on how to deal with tax allowance depreciation?
Sometimes tax allowable depreciation are deducted from the cash flow and then added back after taxation charges, in some other cases, it is the saving value of tax allowable depreciation is determine and added to post tax cash flows just like in Romage (FS 6/00), part (b) question.
My question is how do I know when the tax allowable depreciation should be just deducted from the cash flow and then added back after taxation charges, and when to just determine the tax saving value of the depreciation and add to Post tax cash flow?
You can do it either way – the end result will be the same.
Best is to watch the F9 lecture on investment appraisal with tax, because there I explain the two ways and why usually it is more efficient in the exam to calculate the tax on the operating flows and the tax saved on capital allowances separately.
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