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By referring to Kaplan text (Vaild until June 2016), pg 65 shows the computation of tax depreciation of the assets. The answer first works out the the TAD which is 26,000 @ 25 % = 6,500 … and then 6,500 @ 30 % tax rate to get 1,950 tax saving.
At this part i understand the $1,950 will be treated as a positive figure to be added back to the NPV appraisalWhereas, by looking at Kaplan Acca Interim Mock June 2015 p4 – Question 1 – Labrador.
on Swiss subsidiary option, the tax depreciation part need not to consider the tax savings,instead the answers use the TAD amountI am sorry, but I do not have the Kaplan Study Text or Mock Exam.
However, there are two ways of dealing with tax (that are both acceptable and both give the same answer).
One way is to calculate the tax on the operating cash flows and then calculate the tax saving on the capital allowances (tax allowable depreciation) separately.
The alternative is to subtract the capital allowances from the operating cash flows, then calculate the tax, and then add back the capital allowances (because they themselves are not cash flows).
For most questions, the first method is the safest and the easiest. However, again, either method gives the same answer and is acceptable in the exam.
It will help you to watch our free lectures. For this specific problem, the F9 lectures on Investment Appraisal with Tax will also be useful because they explain the two ways and this is revision of F9.
Hi John, can i ask a question regarding TAD and tax saving ?
1. just to summarize, there are two ways to calculate TAD
first one is by simply multiplying TAD rate to get the TAD amount.
second one is by multiplying TAD rate and TAX SAVING rate to get the TAD amount.
is it correct ?
you have mentioned that both give the same answer but how can both have the same answer ? first one did not multiplied tax saving amount to get TAD while second multiplied tax saving to get the TAD amount.
Hi John, i still was not able to clear my doubt after watching APV videos.
Is it possible if you help me to answer my questions ?
if i’m watching the wrong lectures, is it possible to let me know which video lecture to watch for me to understand TAD problem that i have written above ?
Hi John, i finally understood using F9 videos not AFM videos. Plz ignore my question
thank you
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