The average tax rate is calculated by dividing the total tax payable by the taxable income and it represents the percentage of the income that goes to pay taxes. Consider the following data for two corporations, ABC and XYZ Inc.: ParticularsABC Inc. (Rs.)XYZ Inc. (Rs.)Gross Profit2,600,0002,600,000Administrative Expenses800,000800,000Depreciation200,000500,000Other Income900,000900,000Taxable Income2,500,0002,200,000Requirements:Calculate the average tax rate for both companies.Briefly describe how the above calculations support the notion that depreciation acts as a tax shield.Your answers must be presented in the following format:Average tax rate Company ABC:   --------------   Campy XYX:      --------------Justification: -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

To calculate the average tax rate, we need to know the total tax payable for both companies, which is not provided in the data. However, if we had that information, the calculation would be as follows:

1. Determine the total tax payable for each company. This information is usually provided in the company's financial statements.

2. Divide the total tax payable by the taxable income for each company.

3. Multiply the result by 100 to get the average tax rate as a percentage.

For example, if the total tax payable for ABC Inc. was Rs. 500,000, the calculation would be:

(500,000 / 2,500,000) * 100 = 20%

This means that 20% of ABC Inc.'s taxable income goes to pay taxes.

As for the role of depreciation as a tax shield, it reduces the taxable income of a company. In the given data, XYZ Inc. has higher depreciation expenses than ABC Inc., which reduces its taxable income. This means that XYZ Inc. will pay less in taxes, all else being equal. This is how depreciation acts as a tax shield - it reduces the amount of income that is subject to tax, thereby reducing the total tax payable.