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Tax saving on loss on sale in capital budegting.

rajeev (nnnone) (224 Points)

08 April 2014

I am really confused , why only tax saving is calculated and not whole loss in replacement of assets in capital budegting.

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Bharat Aggarwal (CA Final SFM Coach) (33 Points)
Replied 08 April 2014

Capital budgeting is driven by cash flow of a firm and not accounting P&L. Hence loss of asssest will not be part of cash flows but the tax shield on that loss will be. However, if the asset is being replaced by a new one then, cash flow for new assest will show as outflow in your capital budgeting.