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FMP-goodwill valuation- pls clarify

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Yamini Swarnalatha

Chartered Accountant

62 Points Posted on 11 November 2011

Dear all!

For Goodwill valuation, in a problem PBT and income tax rate are given. revalued amount of fixed assets and the amount of additional depreciation to be provided are also given. The addnl depn is deducted from PBT but, the same is specifically added back for computing tax amt.

Illustaration:-

PBT- 100000

less: addnl depn- 40000

balance - 60000

Less: tax @ 50%-50000

(100000*50%)

PBT- i.e. FMP - 50000

why should we add back addnl depn for computing tax?

Replies (3)

CA. Kunal Lakhotia

ACA

834 Points Posted on 11 November 2011

tax wil be 30000...n nt 50000...tax is levied on bal 60000 which is called FMPBT

Joyal

Article assistant

36 Points Posted on 11 November 2011

dude refer mpv text book there u will get the clarification..mainly the additional depreciation is taken as a disallowance in the tax angle tat is why...and the pat is 10000 in the above case

CA Sarika Tiwari

Partner

25 Points Posted on 11 November 2011

In simple language i can say for Income Tax Amount calculation actual depreciation is allowed as deduction and not additional depreciation. We are deducting additional depreciation just to calculate amount of Goodwill..