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Dear John,
Can you explain how the examiner has charged depreciation in the answer?
How can not charging depreciation every year but adding the realisable value be considered equal?
I know it sounds silly, but I really appreciate if you can answer this.Unless a question says different, then the way that TAD is calculated is that it is 25% on reducing balance every year until the final year. In the final year the sale proceeds are subtracted from the balance and the difference is a balancing charge or balancing allowance. This is the same as it was for Paper FM (was F9).
It means that the total allowances over the life are equal to the difference between the cost and the sale proceeds (of, in this case, 17,100).
The only relevance of the TAD is to calculate the tax payable. It does not appear in the cash flows because it is not a cash flow.
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