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operating profit LESS tax allowable depreciation=taxable profit
tax payable on taxable profit ADD back tax allowable depreciation .
And no WDA benefit.Is it right format in NPV calculation?
orNO need to LESS and ADD back. just WDA benefit claim .
>>which one do u prefer sir?
I think you mean the right thing in your first sentence, but you have not written it correctly.
There are two ways you can deal with capital allowances:
Method 1:
Calculate the tax on the operating cash flow, and separately calculate the tax saving on the capital allowances
Method 2:
Subtract the capital allowances from the operating cash flow (to get the taxable profit), calculate the tax on the taxable profit, then add back the capital allowances because they are not a cash flow.
Both methods give the same answer. I personally prefer method 1 – I find it quicker, easier, and safer 🙂
(Whichever way you do it, the capital allowances are the WDA’s)
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