Fm3_chapter04appendi - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 B C D E

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2006 P&L for tax purposes 2006 P&L for reporting purposes Sales 1000 Sales 1000 Costs 500 Costs 500 Depreciation 300 Depreciation 250 PBT 200 PBT 250 Taxes (40%) 80 Taxes (40%) 100 PAT 120 PAT 150 Cash flow PAT 120 #MACRO? Add back depreciation 300 #MACRO? Cash flow 420 #MACRO? Balance Sheet 2005 2006 Assets Cash 0 420 #MACRO? Other current assets 0 0 #MACRO? FA at cost 500 500 Accumulated depreciation 0 250 #MACRO? Net fixed assets 500 250 Total assets 500 670 Liabilities and equity Current liabilities 0 0 Deferred taxes 0 20 #MACRO? Debt 0 0 Equity Stock 200 200 Accumulated retained 300 450 #MACRO? Total liabilities and equity 500 670 Assumptions: 1. All COGS in cash 2. All Sales in cash 3. No new assets purchased 4. No debt repaid or taken out 5. No dividends paid or stock sold or repurchased DEFERRED TAXES AND ACCELERATED DEPRECIATION An Example The PLUG! Without this, the asset side of the balance sheet grows by 420 - 200= 220, whereas the liabilities/equity side grows by 180. A B C D E 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
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Depreciation is reported from the shareholder P&L Cash balances grow by the cash flow (determined by the tax P&L) Accumulated retained earnings grow by the PAT from the shareholder P&L F 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
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2007 P&L for tax purposes 2007 P&L for reporting purposes Sales 1000 Sales 1000 Costs 500 Costs 500 Depreciation 200 Depreciation 250 PBT 300 PBT 250 Taxes (40%) 120 Taxes (40%) 100 PAT 180 PAT 150 Cash flow PAT 180 ### Add back depreciation 200 ### Cash flow 380 ### Balance Sheet 2007 2007 Assets Cash 420 800 #MACRO? Other current assets 0 0 #MACRO? FA at cost 500 500 Accumulated depreciation 250 500 #MACRO? Net fixed assets 250 0 Total assets 670 800 Liabilities and equity Current liabilities 0 0 Deferred taxes 20 0 #MACRO? Debt 0 0 Equity Stock 200 200 Accumulated retained 450 600 #MACRO? Total liabilities and equity 670 800 DEFERRED TAXES AND ACCELERATED DEPRECIA The next year--asset is fully depreciated Accumulated depreciation is zero in 2007--the firm's actual taxes paid are higher by $20 than taxes reported to shareholders.
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This note was uploaded on 01/23/2011 for the course FGB 780 taught by Professor Edwardchang during the Spring '09 term at Missouri State University-Springfield.

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Fm3_chapter04appendi - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 B C D E

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