What is the logic behind reclassifying overpayments from OCF to FCF on a post tax basis? I’m good with the reason for re classification but I don’t get why tax implications would need to be taken into account.
Thanks
Pension contributions made by the employer might not be a tax deductible item? In other words, employer needs to pay taxes on contributions.
That’s the only justification I could think of.
Think its coz in the CFS, you already accounted for the adjustment of the tax expense, an Income statement entry, (based on a Net Income after pension costs have already been expensed) to 'tax paid", a cash outflow. Therefore, to adjust an already prepared CFS, it is appropriate to use the post-tax amount. I think of it as way of avoiding double counting…if that makes sense.