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Hello Sir,
In b(1) part of Talam Co, why is tax allowable depreciation mentioned as $12,250 for the 4th Year in the working note? I understand the deduction of $5250 but cannot the other $7000.
Thank You
It is the balancing allowance.
The tax written down value after 3 years is 35,000 – (3 x 5250) = 19,250.
In the 4th year (the year of sale) there is a balance allowance of the difference between the tax written down value and the sale proceeds which is 12,250.
This is revision from Paper FM (was Paper F9) and I do suggest that you watch my free Paper FM lectures on investment appraisal with tax where I explain the tax rules.
Sorry that I answered someone’s question in Ask The Tutor Forum. I was unaware. I actually attempted that question quite recently and just wanted to help.
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