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Capital budgeting

shobhit chandra (ipcc student) (707 Points)

03 October 2011

friend.....mujhe cap budgeting me dep & tax ka treatment samaj nahi a ra.....sumtimes it adds after calculating PAT........SUMTIMES IT IS ONLY DEDUCT FROM PROFIT BEFORE DEP & TAX.....sumtimes it is of no use in the ques......plzz clear ma quesry....

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4 Replies

Sumit Grover (Chartered Accountant ) (3652 Points)
Replied 03 October 2011

there are two ways of calculating Cash Flows After Tax(CFAT)

1) CFAT==PAT+Depr

2)CFAT==CFBT(i.e.before depr & taxes)- tax liability

for example

CFBT----100

- depr--- (10)

PBT --- 90

- tax @ 50%--(45)

PAT 45

1) CFAT==45+10==55

2) CFAT==100-45==55

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Desi Mojito (Chartered Accountant) (142 Points)
Replied 03 October 2011

if there is no tax then deprctn will be ignored. U can also apply the tax percentage on deprctn n then deduct it from cfat.

Kamal (article) (165 Points)
Replied 03 October 2011

There are two aspects.If the question says to calculate cash inflow then dep n tax liab will be deduct from pat n another aspect is , if question sasy to calculate cash outflow then dep n tax liab will be added .