In the example given at the end of section 3 of chapter 7, under Situation 3, the example numbers are given as: min profit = 350 I = 250 E = 150 To make the min profit = I-E, should the I be increased by 250 to 500 (so that I-E = 350), and so the company be XSI, or should the E be decreased by 150 to 0, and I increased by 100 to 350, in which case the company is XSE since the carried forward E=150 is more than the carried forward I=100?
We always decrease E to zero before we start to increase I if the minimum profits test bites. So E is decreased by 150 to 0, and I increased by 100 to 350 in your example. The company is then XSE because the minimum profits test bites (it has nothing to do with the E carried forward being bigger than the I). A company is described as XSE whenever it has expenses to carry forward to the next year. Best wishes Mark
Thanks Mark. Is it then safe to say that if the minimum profits test bite, then the company will surely be XSE, but not vice versa?
Yes, there are two reasons to be XSE: the minimum profits test biting, and having E greater than I. So if the profits test bites, then the company is surely XSE. If the company is XSE, then it may be because it has E>I (instead of the profits test). Best wishes Mark
