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Dear John, there is question confused me. came from BBP practice and kit question number 51 Leaminger Co December 2002.
in the question saying “a full year’s allowance is given in the year of acquisition but not tax allowable depreciation is available in the year of disposal. the difference between the proceeds and the tax written down value in the year of disposal is allowable or chargeable for tax as appropriate.” this is very confused me at all.
but in the answer they put depreciation tax benefit in 2006 which disposal was carried out mentioned by question. another confusion is that 2006 was disposal year, but in the answer they changed to 2007.
would you please help me what the theory it is behind it?
many thanksDear John , the same question, in question b, why they didn’t use 150,000 or 135,000 x 0.2,
while other two option did.
in question b they said that during this time the most marginal investment project , which is perfectly divisible, requires an outlay of $500,000 and would generate a net present value of $100,000. i am very confused about that $100,000 is positive, why they said in the answer that every $ of year0 expenditure will involve a loss of profit of 100,000/500,000=20c, in that $100,000 seem to be loss.
would you please help me.
many thanksWith regard to Leaminger, you are going to have to watch my free lectures on investment appraisal with tax, and on lease and buy.
The statement about ‘full years depreciation in the year of acquisition………’ is the standard tax rule and is explained in detail in my lectures on investment appraisal with tax. I cannot type out the whole lecture here 🙂With regard to part (b), if there was no capital rationing then they would invest 500,000 in this other project and be earning an NPV of 100,000. However, because there is capital rationing, if they (for example) purchase the machine in A then they will be using 360,000 of the money and therefore losing NPV that they could have been earning from this other project.
Dear Sir, in question b, why financial lease didn’t use 150,000 or 135,000 x 0.2,
while other two option did.
many thanksChapters 8 and 9 (although you should not use the notes without watching the lectures that go with them – the lectures explain and expand on the notes. If you are not watching the lectures for any reason then you must study using a Study Text from one of the ACCA approved publishers.)
Because the finance lease does not require any outflow until the end of X3 and there is no capital rationing then because they are raising more money.
thank you so much for your help, do i need a latest practice kit?
many thanksYou are welcome 🙂
If you have a recent Revision Kit then that is OK (but be aware that the format of the exam has changed and there are not more MCQ’s and fewer long-form questions. There is a specimen exam on the ACCA website).
If you do not have a Revision Kit then you should buy one from one of the ACCA approved publishers, because they contain lots of exam standard questions for practice, and practice is vital for passing the exam.
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