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