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Good evening sir
so, i am attempting a problem given in the kaplan text, which i know u dont have. but am pretty sure my question is very simple…
its an international NPV short problem and it says:
“tax allowable depreciation will be granted on a straight line basis, and any residual value will be taxed at 20%”
the investment amount is 81m. and the residual is 10m. project is 3 years.
so, i did what i do: 81-10=71 and 71/3= 23.67
but in the answer given, it deducts 27 (81/3) and in year 3 it deducts 2m as tax on the 10m residual.
i dont get this!
what i did above:is it only applicable to reducing balance?
pls elaborate.
thanks
For tax allowable depreciation, the amount each year is calculated just on the initial cost (whether it is straight line or reducing balance). Any scrap value is not taken into account, and is only relevant in calculating the balancing charge or allowance when the asset is sold.
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