Hello, Looking at Q&A bank question 2.20, it adds back depreciation to the operating profit figure in order to calculate the tax due. But from the work on the income sheets, doesn't the operating profit factor in the depreciation cost already? From the gross profit figure in the income sheet we work out the operating profit and we then go on to work out the tax? Why is depreciation factored into this operating profit figure? If someone could help with this question it would be much appreciated. Thanks
hmm i haven't done this for a long time, but maybe the depreciation is not allowable for tax purposes so is added back on?
Thanks for the reply Gareth, I figured this out - depreciation is added back on and a capital allowance is subtracted to account for it.
