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Why don’t we deduct scrap value from the capital allowance figure at the last year when we perform calculations for finding the tax shields based on a straight line depreciation methodology?
For tax purposes it is usually reducing balance in the exam rather than straight line depreciation.
If it is straight line then it should be calculate on the original cost (ignoring any scrap proceeds). Otherwise companies would ‘invent’ estimated sale proceeds purely to change their tax liability,
In financial accounting we do take the scrap proceeds into account when calculating the depreciation and the Paper FM examiner does give you the marks if you do this in the exam even through strictly it is wrong.
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