An asset is purchased for $2,200,000. $100,000 is paid for several duties. The cost to bring the
Question:
An asset is purchased for $2,200,000. $100,000 is paid for several duties. The cost to bring the asset into the condition necessary to make it capable of operating is $200,000. It is probable that the useful life of the asset will be 6 years. The tax department allowed the depreciation of the asset in first 4 years of operation. The old asset may be sold for $400,000 at a loss of $ 50,000. There will also an increase in working capital for $200,000.
It will be resulted an increase in operating profit of $600,000 without subtracting depreciation. At the end of the life of the project the asset may be sold for $300,000 and the working capital will also be released. What will be the cash flow at the start and during the life of the asset, make separate calculations for the last year of the project. The tax rate is 40%.
International Financial Reporting A Practical Guide
ISBN: 978-1292200743
6th edition
Authors: Alan Melville