Taxation/Allowances

1. Reduce the profits by the WDA's (reducing balance method ie 25% of 1,000,000 then Yr 2 25% of 750,000) 2. Reduce this figure by the taxation percentage 3. Taxation charge in Year 1 will be taken subtracted off year 2's Cash Flow. THIS HAS NOW CHANGED AND IT IS ASSUMED THAT THE TAX WILL BE PAID IN THE SAME YEAR. MAKE IT CLEAR IN THE ANSWER WHAT YOUR APPROACH IS 4. the net cash flow is multipled by the DF to calaculate the PV

eg yr 1 Profits.........500 WDA...........250 Profit..........250 Tax @35%..87.5 Remember to add on the disposal value $316,400 (WDvalue at the end of the project) show taxation Discount tax charge for the year after the project

Balancing Charge If the investment was sold for greater than the written down value then is a balancing charge. The last year would be Profits....................500 WDA.....................(105) Bal Chg 450-316.....133 Tax.......................184

Balancing Allowance If the investment was sold for less than the WDV (say 250) then Profits.................500 WDA..................(105) Bal All 316-250..( 66) Tax ...................115