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Dear sir,
tramont co in the pilot paper, i have a question please, checking the examiner answer, i was working, in his working 5 with regards to tax, i was a bit confused as to why after getting the tax amount, why he did not add back the 20,000 tax allow depreciation for yr 1-4, shouldn’t he have done so please…there is a question in bpp novoroast plc..where in fact from all previous questions we got to add back that tax allowable depreciation if we deducted it in the first place to get it in form of cash flow again..when you check the answer working 5 of tramont u will see what i mean..please guide me
What the examiner has done is correct – he has shown in the cash flow table the profit before tax, and the tax flow.
What you are confusing it with is that more often the workings are all done in the cash flow table and in that case we show the profit before tax, less the cap allowances, then the tax flows, then add back the capital allowances (because they are not a cash flow).
Here, the examiner has not subtracted the cap allowances in the cash flow table and therefore does not need to add them back (the workings are all done separately). What made it necessary to show separately was the existence of losses for tax purposes.
thxxx loads sir all clear..u even replied why he decided to show it seperately this time out.
I got one more question, a very simple one but i am confused.
case 1 cost of say plant and machinery 1000000, s.line method at 10% rv 200,000..4 yrs life
so tax allowable dep= 100,000 …in 4th yr nbv=700,000 then deduct rv 200000= 500,000 balancg allowance, right?case 2,my issue is if questin said s.line method but life say 5 yrs..it seems to me i have seen in a questin that the tax allowable dep takes into account the 200,000 rv that (1000000-200000)/4, rgt?
so my question is why in case one we dnt need to deduct rv when its given in % and when given in yrs we deduct the rv to cal the tallow depreciation…back in f7 i recall both cases we must deduct that rvalue to calculate depreciation, if ever i made a mistake in my above statements please correct me, i hpe its not a silly question
Case 1:
If depreciation is 10% straight line, then it is 10% x cost each year. No estimate is made for depreciation purposes of the realisable value. (10% straight line is equivalent to straight line over an expected life of 10 years).
Case 2:
If it is straight line over 5 years with cost of 1,000,000 and realisable value of 200,000, then the depreciation is (1,000,000 – 200,000)/5 each year
thxx sir..all clear…nw i just realised it was same in f7. just made some confusion ..all clear 🙂
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