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Report name: Sample Forecast

How Fixed Asset Net Book Forecasts are Calculated

This shows how forecast net book values for fixed assets are calculated. Capital allowances replace depreciation when assessing tax relief.

forecast for year beginning the 1st.May 2017May 2018May 2019
 Forecast Net Book Value - Main Pool Assets
 Net Book Value Bfwd3,50028,87334,871
 Cost30,00015,00020,000
 Sold000
 Net cost33,50043,87354,871
    
 Depreciation Charge4,6279,00211,913
 Depreciation Written Back000
 Net Depreciation Charged4,6279,00211,913
    
 Net Book Value Main Assets CFwd28,87334,87142,958
    
 Profit on Sale of Main Pool Assets000
    
 Forecast Net Book Value - Company Cars
 Net Book Value Bfwd9,00027,75119,210
 Cost25,000030,000
 Sold006,000
 Net cost34,00027,75143,210
    
 Depreciation Charge6,2498,5418,816
 Depreciation Written Back00438
 Net Depreciation Charged6,2498,5418,377
    
 Net Book Value Cars CFwd27,75119,21034,832
    
 Profit on Sale of Company Cars000

The Role of Depreciation

Values of fixed assets in a balance sheet arise from their perceived working lives not from what someone might be expected to pay for them. For example, fixed assets with a life of ten years will be depreciated at 10% and of twenty years at 5%.

For this reason, revenue arising from the disposal of fixed assets will rarely represent a fair sale value; which is likely to be significantly lower than its written down net book value.

In the event of a forced sale, that value will be lower still, which is why fixed assets should always be heavily discounted when assessing a company's true net worth.

Depreciation and Capital Allowances

As depreciation is a non-cash provision, it is not tax deductible; it is substituted for by capital allowances.

Each year new main pool assets; for example, machinery, fixtures, furniture, equipment and commercial vehicles attract capital allowances of 100% up to the limit for (AIA) annual investment allowance up to a limit of £200,000 (2017 / 2018).

If more than £200,000 is spent on main pool assets in any year the allowance on the balance falls to 18%.

Capital allowances are calculated on their reducing balance, not their original cost excluding VAT. If, in the unlikely event an SME has a written down tax balance of main pool assets an allowance of 18% will also be applicable in subsequent years.

Capital Allowances for Company Cars

AIA limit is currently (2017 / 2018) set at £200,000. Annual investment allowances do not apply to company cars unless their emissions are at or below 110gm/Km of CO2.

Company cars with higher emissions will only attract an 8% AIA  and 8% again on the reducing balance in subsequent years.

Figurewizard always assumes the worst and so categorises the values of company cars you enter as subject to the 8% rate for the purpose of the forecasts.

Budgeting of Fixed Assets

Figurewizard budgets the acquisition and disposal of fixed assets over a twelve-month period. For example, if you enter a year's purchases of new fixed assets at £1,200, they will be assumed to have been purchased at the rate of £100 a month.

Depreciation, charged or written back if some fixed assets are sold are all calculated and applied to the forecasts in line with that as are asset financing loans, their repayments and interest.

How Figurewizard Calculates Depreciation

Figurewizard uses the straight line method when calculating depreciation. For example, if depreciation is set at 20%, fixed assets will be depreciated to zero over five years.

Depreciation written back on the value of sales is similarly calculated. In addition, our system always assigns the sale of fixed assets on a first in first out basis. For the purpose of forecasting and budgeting straight line depreciation is the most prudent approach.

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