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Sir, Your lectures are excellent I owe you a lot ..
But with regard to TAX SAVINGS ON DEPRECIATION Pl clarify me with foll.. IF STRAIGHT LINE METHOD is followed with SCRAP VALUE at end is a) = asset value @beginning of last yr b)> asset value c)< asset value [ treatment in the operating & terminal flow heads]
I would appreciate if you could explain these scenarios with example…I am not exactly sure what you mean.
I will give an example but if you mean something different then ask again 🙂Suppose that the cost is 100,000, it lasts 4 years, with scrap value of 10,000
With straight line depreciation for tax purposes, it will mean dep’n of 90,000/4 = 22,500 per year. If tax is 30% then the tax saving will be 30% x 22500 = 6750 per year for 4 years.
There would be no balancing charge or allowance at the end because the total tax depreciation will be equal to the fall in value.
(It is unusual for the examiner to have straight line depreciation – it is almost always reducing balance. Also, if it is straight line, then there will almost certainly be no scrap value.)
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