Assume the company in Question 46.1 pays tax at 30 per cent, on 30 September each year, nine months after the end of its financial period. The company receives 20 per cent writing-down allowances on the cost of equipment and will receive the allowances for 20X4 expenditure to be offset against the tax payable on the profits for 20X4. 100 per cent capital allowances were received on the old equipment sold in 20X5 and the receipts from the sale of the old equipment must, therefore, be treated as taxable income of 20X5. Show the impact on the cash flows of these tax items.

Data from Question 46.1

The following project costs have been estimated relating to the upgrading of some equipment; all the costs are being incurred solely because of the project:

Ignoring tax, prepare a statement showing the outlays of cash on the project in 20X4 and 20X5. The new facility will be in full use from 1 July 20X5.

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20X4 January March December 20X5 January March One year's rent on premises paid 31 Equipment purchased 31 Installation of equipment completed and paid 31 Costs incurred in commissioning equipment May June One year's rent on premises paid Additional commissioning costs paid Training costs paid Additional working capital provided 31 30 December 31 Cash proceeds from sale of old equipment £ 12,000 20,000 4,000 8,000 12,000 6,000 3,000 16,000 5,000