Tax Part 4

Quick reference

• 00:05 Let's start modeling tax.
• 00:08 Let's get going, it's time to start with tax.
• 00:10 What could be more exciting without pulling your toe nails out or
• 00:14 slicing out your eye balls or something.
• 00:17 Let's have a look what we're going to plot through here then by going
• 00:20 to the assumptions sheet first of all.
• 00:23 And we've already considered the tax rate in row 100, we had to use that for
• 00:27 the interest receivable calculation earlier.
• 00:30 Now the first thing I'm going to look at in the assumptions is the permanent
• 00:32 differences, the non-accessible revenue and the disallowable expenses.
• 00:36 These will probably be inputs given to you by tax experts.
• 00:39 It's not something you're going to easily work out,
• 00:41 because it requires expertise in your territory or
• 00:44 region to know what should be not assesable for revenue purposes, IE.
• 00:48 This is a revenue you can deduct from your income statement and
• 00:52 this allowable expenses there are things you have to add back,
• 00:55 because there not allowed for tax purposes like tax fines, things like that in there.
• 01:00 So with that born in mind, let's go and start doing the calculations here.
• 01:06 So first of all, I have actually brought in the non-assessable revenues and
• 01:11 disalowable expenses,
• 01:13 I'm going to need to bring in the net profit before tax which we've already got.
• 01:16 So let's go to the income statement and bring that in.
• 01:21 There's net profit before tax there.
• 01:23 Drag it across.
• 01:25 Now we deduct off the non-assessable revenue.
• 01:30 And we add back the disallowable expenses.
• 01:40 Summing these gives me my accounting taxable profit, and
• 01:44 this is the adjustment that we use for
• 01:47 calculating the tax expense in the income statement.
• 01:52 We'll multiply that by the prevailing tax rate in our case 30%, which will therefore
• 01:57 give me equals that multiplied by that and copy that across.
• 02:05 Now there's a mistake I need to talk about here that people make regularly,
• 02:09 is they think that if the actual taxable profit is
• 02:12 negative as a consequence of this, which it could be.
• 02:15 Then they should actually restrict this to just positive or
• 02:18 at least non-negative numbers.
• 02:20 So if it's a credit we shouldn't put it through.
• 02:22 That's not true.
• 02:24 Remember the income statement is what you accrue.
• 02:27 What's a attributed to a particular period, that's what you're doing here.
• 02:32 And therefore if you've made a loss, and
• 02:35 therefore it's a million dollar loss and you got $300,000 tax credit.
• 02:40 It's attributable to that pay rate.
• 02:41 Now, no one is gonna pay it for you.
• 02:42 It's a different thing if we're looking at cash and we'll look at that in a little
• 02:45 bit, but if it's the actual income statement number, it is attributable to
• 02:50 this period therefore it should be accrued in this period.
• 02:52 Therefore, we don't restrict if you're simply
• 02:55 going to be nothing more than accounting taxable profit times tax rate.
• 02:58 It's a theoretical construct.
• 03:01 Right, that's the first one.
• 03:03 What we've got to do next is calculate tax depreciation,
• 03:06 the declining balance method.
• 03:07 But guess what?
• 03:08 We're gonna do that next time.

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