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When calculating tax savings using straight line depreciation, will both of the following methods get full credit?
1) ((cost – scrap value)/useful life) * tax rate
2) (cost/useful life) * tax rate
When the question specifies that tax will be paid in arrears, you should calculate the balancing allowance. The balancing allowance is the difference between the initial cost of the asset and the sale proceeds. It is used to determine the tax relief in the final year.
However, if the question mentions that tax is payable on the same day the transaction occurs, and the tax relief is based on a straight-line method, you would use the same value of tax relief for all years.
So you have to calculate
560 / 5 = 112 * 20% = 22.4 for year 1-4 as tax in arrears it’s periods 2-5Then in the 5th yr?The wdv = 112?RV = 60?So the bal allow is 52 * 20% = 10.4 for period 6
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