Session5 Basics Of Project Finance Depreciation
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Session5 Basics Of Project Finance Depreciation as PDF for free.
More details
- Words: 533
- Pages: 11
Infrastructure Project Finance Basics • • •
Mona Iyer CEPT University
Session Outline Concepts of Depreciation and Tax
•
Components of Cash Flow
•
•
Profit and loss Account •
PROFIT BEFORE DEPRE & TAX (A-B)+(C-D) i.e. Net Operating Profit + Net Non-Operating Profit
Depreciation as per CO Act PROFIT BEFORE TAX Corporate Tax PROFIT AFTER TAX •
•
Depreciation •
A regular reduction in asset value over time.
•
Tax deductable
•
As per IT Act and Co. Act
•
Two Methods • •
Written Down Value Method Straight Line Method
•
WDV for IT purpose
•
SLM for Company’s internal P & L
• •
Depreciation •
Written Down Value Method
• •
Depreciation calculated on written down value
• •
Eg. Depreciation rate 10%
•
Year 1 2 3 4
•
Value of Asset
•
Depreciation 10 9 8.1
•
WDV90 81 72.9 65.6
100 90 81 72.9
• •
Dn = I (1-d)^(n-1) * d
7.3
Depreciation •
Straight Line Method
• •
Depreciation calculated on Initial Cost
• •
Eg. Depreciation rate 10%
•
Year 1 2 3 4
•
Value of Asset
•
Depreciation 10 10 10 10
•
Dep’ted Value90 80 70 60
100 90 80 70
Tax •
As per section 80 IA
•
Taxable income •Corporate Tax •
•
•
Tax Holiday •
•
•
10 years for initial 15-20 years
Mini Alternative (MAT) Tax/ Alternative Mini Tax (AMT) •
•
A levy placed on the profit; different rates are used for different levels of profits and types of projects (@ 35% for Infra projects)
To avoid zero tax scenario (@ 7-7.7%)
Cash Flows It is inflow and outflow of cash that matters practically in any project •
Cash flow estimation is most critical in investment/financial analysis •
Financial manager prepares this in consultation with experts in accounting, production, marketing, economics, technology etc. •
It is the cash which project has in hands to make payments to creditors, invest for future expansion and operations distribute to share holders etc •
Cashflow is difference between the cash received and cash paid out •
Cash Flows •
(operating, investing, financing activities) for desired liquidity
•
•
SOURCES OF CASH
•
Net Profit After Depreciation & Taxes
•
Depreciation
•
Transfer from Cash Surplus
•
Transfer from Debt Service Reserve
•
Sub-ordinated Debt /grant /equity for Rolling Stock additions during Operations
•
A. Total Sources of Cash
•
•
USES OF CASH
•
Transfer to Debt Service Reserve
•
Transfer to Cash surplus
•
Rolling Stock Additions during Operations Period
•
B. Total Uses of Cash
•
•
•
•
NET CHANGES IN CASH BALANCE
(A-B)
Cash Flows •
Three stages of cash flow
•
Initial Investment (Capital investment plan)
•
Net Annual Cash Flow (Cash Flow Statement)
•
Terminal Cash Flows (Cash Flow Statement) •
Salvage value of assets sold (if any) •
•
•
Cash proceeds to be added as cash inflow in last year
Removal cost (to replace existing asset)
•
•
Tax Holiday: A benefit granted to a project that provides project owners an exemption from taxation for a negotiated or statutory period. Salvage Value: Market price of asset/investment at time of sale
Mona Iyer CEPT University
Session Outline Concepts of Depreciation and Tax
•
Components of Cash Flow
•
•
Profit and loss Account •
PROFIT BEFORE DEPRE & TAX (A-B)+(C-D) i.e. Net Operating Profit + Net Non-Operating Profit
Depreciation as per CO Act PROFIT BEFORE TAX Corporate Tax PROFIT AFTER TAX •
•
Depreciation •
A regular reduction in asset value over time.
•
Tax deductable
•
As per IT Act and Co. Act
•
Two Methods • •
Written Down Value Method Straight Line Method
•
WDV for IT purpose
•
SLM for Company’s internal P & L
• •
Depreciation •
Written Down Value Method
• •
Depreciation calculated on written down value
• •
Eg. Depreciation rate 10%
•
Year 1 2 3 4
•
Value of Asset
•
Depreciation 10 9 8.1
•
WDV90 81 72.9 65.6
100 90 81 72.9
• •
Dn = I (1-d)^(n-1) * d
7.3
Depreciation •
Straight Line Method
• •
Depreciation calculated on Initial Cost
• •
Eg. Depreciation rate 10%
•
Year 1 2 3 4
•
Value of Asset
•
Depreciation 10 10 10 10
•
Dep’ted Value90 80 70 60
100 90 80 70
Tax •
As per section 80 IA
•
Taxable income •Corporate Tax •
•
•
Tax Holiday •
•
•
10 years for initial 15-20 years
Mini Alternative (MAT) Tax/ Alternative Mini Tax (AMT) •
•
A levy placed on the profit; different rates are used for different levels of profits and types of projects (@ 35% for Infra projects)
To avoid zero tax scenario (@ 7-7.7%)
Cash Flows It is inflow and outflow of cash that matters practically in any project •
Cash flow estimation is most critical in investment/financial analysis •
Financial manager prepares this in consultation with experts in accounting, production, marketing, economics, technology etc. •
It is the cash which project has in hands to make payments to creditors, invest for future expansion and operations distribute to share holders etc •
Cashflow is difference between the cash received and cash paid out •
Cash Flows •
(operating, investing, financing activities) for desired liquidity
•
•
SOURCES OF CASH
•
Net Profit After Depreciation & Taxes
•
Depreciation
•
Transfer from Cash Surplus
•
Transfer from Debt Service Reserve
•
Sub-ordinated Debt /grant /equity for Rolling Stock additions during Operations
•
A. Total Sources of Cash
•
•
USES OF CASH
•
Transfer to Debt Service Reserve
•
Transfer to Cash surplus
•
Rolling Stock Additions during Operations Period
•
B. Total Uses of Cash
•
•
•
•
NET CHANGES IN CASH BALANCE
(A-B)
Cash Flows •
Three stages of cash flow
•
Initial Investment (Capital investment plan)
•
Net Annual Cash Flow (Cash Flow Statement)
•
Terminal Cash Flows (Cash Flow Statement) •
Salvage value of assets sold (if any) •
•
•
Cash proceeds to be added as cash inflow in last year
Removal cost (to replace existing asset)
•
•
Tax Holiday: A benefit granted to a project that provides project owners an exemption from taxation for a negotiated or statutory period. Salvage Value: Market price of asset/investment at time of sale
Related Documents
Session5 Basics Of Project Finance Depreciation
June 2020 6
Basics Of Project Finance
November 2019 25
Basics Of Finance
April 2020 18
Session 2 Basics Of Project Finance
June 2020 13
Finance Basics
June 2020 5
Basics Of Project Management
June 2020 9More Documents from ""
Session7-dscr+conventional Risk Mitigation
June 2020 5
Aug 2006
June 2020 14
Urbanism As Way Of Life
June 2020 18
Fop - Fin Proj Vmc
June 2020 8
