Comment by alchemist1e9
3 years ago
I don’t think you understand amortized expense accounting and income tax, you have a line item labeled tax on revenue.
What you are showing is cash flow not the income statement and also you don’t understand the tax is based on the income statement and not the salaries being paid or the revenue, but the calculated income for tax purposes.
In the 2nd year it will be 2/5ths, $200K, amortized expense of prior year plus current year, assuming same numbers, and by the 5th year would be full amount.
Your cash flow is correct and yes it becomes -$200K which is really bad. However I wanted to clarify the mechanics.
Here in Canada we have similar fractional write-offs called CCA (capital cost allowance). That's for assets though, like a company building, car or equipment.
I've written an accounting system before for business activities and successfully used its reports to win a tax dispute.
I'm not so interested in the details of this, particularly because it's in another country, but I do understand the implications of suddenly not being able to entirely write off the likely most important and large business expense.
Ok so you understand but your original comment, before you changed it, talked about a tax on revenue, which isn’t accurate.
I also wrote my own accounting systems based on ledger-cli and regularly deal with amortization of assets.
The change is extremely bad and I’m not trying to say otherwise. Just wanted to clarify the exact calculation and difference between income statement and cash flow calculation.