Page 104 - DBP5043
P. 104
MEASURING A PROJECT’S BENEFITS
AND COSTS (RELEVANT CASH FLOW)
ASSESSING TAX INCURRED DUE TO SALES OF OLD ASSETS –
IMPACT ON INITIAL OUTLAY
3) long assets sold at a price less than book value:
Example:
Original cost of machine = RM30, 000
Book Value of RM20, 000
Sale at = RM18, 000
Loss = RM18, 000 - RM20, 000 =RM2, 000
Assuming 40% tax, sales tax savings from the loss of an old machine
is a 800 (0.4 × 2000)
This means that net income after tax from sale of old machinery is
RM18, 800
(RM18, 000 + 800)
Impact on IO cashflow
Inflow – sales of asset (RM20,000) and tax gain on loss of
disposal ( RM800)
Outflow – nil
