why is STCL considered as a tax benefit while computing NPV of a project?
2 Replies
Amir
(Learner)
(4016 Points)
Replied 02 February 2010
Dear Friend,
U have not edited ur profile na...Trust me u r not doing any good to urself......
Regarding ur query -
STCL is considered as Tax Benefit on the assumption that the organization must be having Sufficient capital gains to set off the Loss under proposal...
In this way it results as an Inflow of funds under the proposal by reducing the total tax outflow of the organization.....
failed student
(failed in final exam)
(92 Points)
Replied 02 February 2010
Sir,
I think that the STCL which arises when the WDV of block of assets is more than the salvage value at the end of the project life gives rise to incremental cashflow due to the fact that cashflow is increased since the company has to pay lesser tax as STCL is setoff against the cashflows accruing for that year.( in the context of capital budgeting )
Regarding editing my profile - it can happen only on the day I become CA. It reminds me of my loopholes and urges me with the determination to do well.
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