Ad Free CAclubindia and Daily Updates on your Mobile. Subscribe Now!

Costing Paper Quest 7(b) Wrong

Kritesh Tiwari (CFP) (109 Points)

12 November 2009

this question is wrong ..as there mention in the quest about net of tax........

so this quest will be solved by incremental method.....

please friends ......give ur idea on this

Reply
Follow
Share

27 Replies

Kritesh Tiwari (CFP) (109 Points)
Replied 12 November 2009

Originally posted by :kritesh tiwari
"	this question is wrong ..as there mention in the quest about net of tax........ so this quest will be solved by incremental method..... please friends ......give ur idea on this	"

Attached File : 11 23 pcc costing.pdf downloaded: 440 times

Upgrade to CAclubindia Pro. Subscribe Now!

bhawna (pcc student) (37 Points)
Replied 12 November 2009

no , its correct question

CA Harish Suwalka (Chartered Accountant ( Bhilwara )) (4125 Points)
Replied 12 November 2009

icai copies this que from some whre and deleted the clause of tax rate but they forgot to edit this line....its fine..no tax rate means evry figure is net of tax

yash bhartiya (final student) (245 Points)
Replied 12 November 2009

here we have to assume a tax rate

CA. CS. CMA. J. RAJGANESH (Triplet Finance Professional) (383 Points)
Replied 13 November 2009

In that question,

Commission Income Rs.12000/-p.a. is given.............

Is there any treatment is required for calculating NPV & PI Index?

Upgrade to CAclubindia Pro. Subscribe Now!

Arvind Sharma (ACA) (1432 Points)
Replied 13 November 2009

Question is absolutely correct, and as mentioned by Yash, we have to assume a tax rate for comuting CFAT...

Kritesh Tiwari (CFP) (109 Points)
Replied 13 November 2009

Thanks friends.....ya it seems ke quest was right.......

Shashi Bhushan (Learner, Jalandhar) (996 Points)
Replied 13 November 2009

What if some body has ignore the tax rate and not adjusted gain of tax because of depreciation?

Arvind Sharma (ACA) (1432 Points)
Replied 13 November 2009

There will no gain on account of realization of Machine as WDV will be equal to Salvage Value, but the effect of tax will be on account of Tax Saving on Depreciation... but on the other hand Tax on Operating Profit i.e. outflow, and that may cause change decision about the project... may be result will be same, but NPV definitely will be different..

As the question is indicating that there is a Tax Burden (commission net of tax, that a indication) and hence it is right practice to assume TAX Rate, otherwise your evaluation shall be wrong and hence, your result also be wrong.. so if somebody has not taken TAX Effect, then his/her ans may be wrong, but dont worry, its a practical sub and hence some marks may be alloted...

CA BARKHA MITTAL (B.COM, CA) (149 Points)
Replied 13 November 2009

Question was right you have to assume tax percentage

Upgrade to CAclubindia Pro. Subscribe Now!

mudassar (ca final) (134 Points)
Replied 13 November 2009

we have ta fing out incremental benefit , that is while finding cfat from the new machine , we have ta deduct the loss of the 120000 comissin , thats wat i think it should be , coz if it doesnt affect the new machine , the very purpose of capital budgeting fails which is choosing btw 2 capital inv decisions , so one clause of commission would ideaaly effect the purchase of new machine , and ya the question is correct , no probs with the question

Arvind Sharma (ACA) (1432 Points)
Replied 13 November 2009

Commission of Rs. 12,000 per annum net of tax shall be treated as opportunity cost and hence it shall be adjusted from CFAT from proposed project...

Dhruv (Chartered Accountant) (308 Points)
Replied 13 November 2009

Net of tax basically implies that the depreciation tax shield has been included in the overall cost, something like saying that the incremental costs include the cost of depreciation lost. So basically..what you had to was to deduct the commission lost and find the net cash inflow.