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Hello
My question is:
suppose for a project we buy $1000 machinary.
tax allowable dep. is 10% straight line basis.
tax rate=20%.
life of project =4yrsQ1: if questionsp says machinery will be SOLD at end of project for $400 then is it correct to say :
Tax benefit in year 1 &year 2& year 3= $1000×10%×20%
Tax benefit in year 4= (700-400)×20%Q2:If question says the SCRAP value of the machinery at end of the project will be 400, then is it correct to say:
Tax benefit in year 1 &year 2& year 3= $1000×10%×20%
Tax benefit in year 4= 700×20%
?????Thank you
Sales price and scrap value are the same thing.
So (unless the question says anything different) the calculation in both cases will be as what you have typed as Q1(which is correct).
Hello again…
In Dec2013-Q1 it is said that the machinary bought for MP1250m and land and building bought for MP1250m.
It is expected that machinary will be sold for MP500m at the enf of year 5.
The market value of land and building at the end of year 5 is estimated to be 1000.tax rate=25%My question is that in answer for calculating tax:
It deduct 500(sold)×25%
But donot do the same for 1000(scrap value of land)…nothing done for taxBut this is in contrast with what you said that scrap value is the same as sale price…
If they are the same for calculating tax it should deduct
1000×25%Why it didnt do this???
Thank you
Because the question specifically says that the value of the land and buildings includes any tax impact.
(If you go to “P4 Revision notes and lectures” from the main P4 page, you will find links to lectures working through the whole of this question, which you might find useful 🙂 )
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