Capital investment appraisal- tax allowable depreciation-ACCA F9 https://shawn-s-accounting-bookkeeping-school.teachable.com/admin/courses/index?page=1&per=24

1. Capital Investment Appraisal-Tax
Allowable Depreciation-ACCA F9
Presented by Shawn Bourne

2. Tax Allowance Depreciation-Capital
Allowances
• Allowing for Taxation
• In investment appraisal, tax is often payable one year in arrears. For
example if a
• project has taxable profits of $40,000 in year 1, assuming a tax rate of
25%, (0.25 x 40,000) $10,000 payable in year 2.
• Tax-allowable depreciation :
• Tax-allowable depreciation (capital allowances) is used to reduce
profits and should be
• treated as a cash saving.
• In the year of disposal no writing down allowance is calculated.

3. Tax Allowance Depreciation-Capital
Allowances
• Plant and machinery costing $100,000 is sold in year 4 for $10,000. Writing down allowance
• is 25% and tax rate is 30%. Calculate capital allowances.
• Cost 100,000
• Year 1 WDA (0.25x100,000) 25,000 x tax rate(0.30) =$7,500 savings (capital allowances)
• Balance 75,000
• Year 2 WDA (0.25x75,000) 18,750 x tax rate(0.30) =$5,625 savings (capital allowances)
• Balance 56,250
• Year 3 WDA (0.25x56,250) 14,063 x tax rate(0.30) =$4,219 savings (capital allowances)
• Balance 42,187
• Balancing allowance(Bal Figure) 32,187 x tax rate (0.30) =$9,656 saving (capital allowances)
• Sales proceed/scrap value 10,000