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in a past question, investment takes place in T0, T1 as 150m and 50m. in the first year of investment, allowance is given at 50% and subsequently it is given at 25% RB. the scrap value at end of project, which is T6, is 7m.
we have to calculate the balancing allowance and its tax saving. tax saving on depreciation has already been done.
tax rate = 30%my yearly calculations are correct. however, in calculating the BA, I did the following:
total allowance = 150+50-7=193
the depreciation from t0 to t6 = 155.72
BA= 37.28, thus at 30% tax rate = 11.18.however in the answer the following is given:
t6 WDA = 19.27
Sale Proceed=7
BA=12.27
thus tax saving = 30%12.27 = 3.68why is my working incorrect?
thank u
(i can reproduce the workings if u need more info)The total depreciation in the examiners answer must have been 180.73, and that is the only reason that your method gives a different answer (you have total depreciation of 155.72).
It is probably because you have made a different assumption. If you tell me the name and year of the question I will check what assumption has been made in the answer and whether other assumptions would be valid.
its question 1 jun 2009
i came across an amended version in latest bpp kit q 16
You can see in the BPP answer how they have calculated the capital allowances.
They have assumed that the first CA will be at time 0, however this would only be the case if the expenditure was on the last day of the accounting period.
I would have normally have assumed that the expenditure was on the first day of an accounting period in which case the first CA would be at time 1 (and I am guessing that it what you did).In this question it is not made clear and so doing that would still get full marks, provided you state your assumption – always in question 1’s of the exam, assumptions are needed and provided you make sensible assumptions you get the marks (and almost always the question specifically asks you to state your assumptions).
This question was set by the previous examiner and many of his questions were confusing or not clear – the current examiner it much clearer in his questions.
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