16 October 2016
Tax can't be charged on loss right? Because I was doing a capital budgeting question and in that tax was subtracted from the loss. I thought this was a one off mistake but then I went to another question and the same thing was there. (it was Rajesh Makkar's book. One of the questions was taken from RTP so I decided to check it out. Turns out the same thing was in it. It was Nov 2010 exams Rtp question number 4. Can anyone tell me if it's right or w
16 October 2016
Can anyone tell me if it's right or wrong and if it's right, why? Unfortunately I can't post the link of the rtp here but Google Nov 2010 sfm rtp and it will give you the link.
16 October 2016
It's the tax saving which will occur when you carry forward the loss. Assume that the losses will be carried forward, returns have been filed on time and then the tax savings which will result because of that loss will be Loss * Tax Rate.
So, If loss is 100, & Tax is 30% , your tax savings eventually will be 30, when you adjust your carried forward loss in the coming years. Or, net loss 100-30 = 70
16 October 2016
See there are two ways to solve such questions. Firstly, you can claim tax savings as saving in cash outflow in the year of loss and solve accordingly. Secondly, you can carry forward loss and set off such loss against future years of profit and solve accordingly. Both the concepts are right, just ensure that in examination you write your assumption note for whichever way you choose. According to me second option is more logical. Good Luck !!!
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