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Tax

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Tax

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
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  • July 21, 2021 at 2:16 am #628953
    Nikitagarwal
    Participant
    • Topics: 154
    • Replies: 147
    • ☆☆☆

    Juicy Co is considering investing in a new industrial juicer for use on a new contract. It will cost $150,000
    and will last 2 years. Juicy Co pays corporation tax at 30% (as the cash flows occur) and, due to the health
    benefits of juicing, the machine attracts 100% tax-allowable depreciation immediately.
    Given a cost of capital of 10%, what is the minimum value of the pre-tax contract revenue receivable in two years which would be required to recover the net cost of the juicer?

    I am really confused how the calculations have been performed in it.
    I understood with the initial outlay of 150000-45000=105,000
    then in FV for 2 years we got 127,050 , then why have they again deducted the tax amount from it ? and how have they done it .because the amount 105k itself is deducted after tax so what’s the need of doing it again ?

    July 21, 2021 at 10:43 am #628986
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    The $105,000 is simply that after tax initial outlet.

    The question asks for the minimum pre-tax revenue receivable in two years, and the revenue will be taxable at 30%.

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