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Hi,
In the exam kit preparing for AFM exam the answers to exercises involving TAD do not calculate the balancing allowance when to include it in the cash flows preparation.
Will you be able to advise me?
Thank you
It depends whether the relevant asset is sold (in which case there is a balancing allowance) or is continuing in use (in which case there is not a balancing allowance), and also on the wording of the question.
If you refer me to specific questions (provided that they are past exam questions, or questions in the BPP Revision Kit), then I will explain for the specific questions.
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Good day, I understand how to calculate the tax allowable depreciation but I don’t understand how the answer is gotten for the tax saved on tax allowable depreciation. Eg for bbp study text 1.3.2 example. Can u please explain how they got to the answers? That is for tax saved on tax allowable depreciation
Sorry, but I do not have the BPP Study Text (only the Revision Kit), so I do not have this question.
Normally, the tax saved is the TAD multiplied by the tax rate.Hi,
Actually this is from Kaplan exam kit.Please see examples below:
Dec05 Adapted:
The them park would cost a total of $400 million.The after tax realisable value is expected to be between $250 milion and $300 million.$250 million of the investment will attract 25% per year tax allowable depreciation allowances on a reducing balances basis.
Answer:No balamcing allowances or charges have been estimated as the realisable value has been estimated on after-tax basis.Dec03 Adapted:
The investment would cost 580 million.Tax allowablew depreciation is 25% per year on reducing balance basis.The after-tax realisable value is estimated to be 150 million.I can see that is about after-tax realisable value but it’s not 100% clear for me.
Thank you
When the question says the ‘after-tax realisable value’ then we assume that to means it is after dealing with the tax effect of the balancing charge or allowance. However, as always in AFM answers, you must state your assumptions clearly.
(These two questions are very old – the current examiner does not tend to use that phrase about after-tax)
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