Page 103 - DBP5043
P. 103
MEASURING A PROJECT’S BENEFITS
AND COSTS (RELEVANT CASH FLOW)
ASSESSING TAX INCURRED DUE TO SALES OF OLD ASSETS – IMPACT ON
INITIAL OUTLAY
Net income (after tax) from sale of old asset:
1) The assets were sold at prices above the old book value:
Example:
Original cost of machine = RM30, 000
Book Value of RM20, 000
Sale at = RM24, 000
profit = RM24, 000 - RM20, 000 = RM4, 000
Assuming 40% tax, sales tax payments from the old machine profit is RM1, 600
(0.4×4000)
This means that net income after tax from sale of old machinery is RM22, 400
(RM24 ,000-RM1, 600)
Impact on IO cashflow
Inflow – sales of asset (RM20,000)
Outflow – income tax (RM1600)
2) the old assets are sold at a price equal to book value:
Example:
Original cost of machine = RM30, 000
Book Value of RM20, 000
Sale at = RM20, 000
profit = RM20, 000 - RM20, 000 = 0
This means that net income after tax from sale of old machinery is RM20, 000
Impact on IO cashflow
Inflow – sales of asset (RM20,000)
Outflow – nil
