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Hi tutor, I have a question_Vogel Co (Jun 14).
Question: Note (vi): “claim 10% tax allowable depreciation on its non?current assets. It can be assumed that the amount of tax allowable depreciation is the same as the investment needed to maintain Ndege Co’s operations”.
I think that the tax allowable depreciation should be plus rather than less and its position should be under tax. Please, explain why the answer has deducted the tax allowable depreciation.
Thanks tutor a lot
I explain this in my free lectures because it is something that the examiner write in most investment appraisal questions. Have you watched the lectures?
Although the TAD is not a cash flow (and therefore if it has been subtracted to calculate the tax, it would then we added back), there is the same amount spent on maintaining the assets and this is a cash flow. So there is no need to add it back.
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