OpenTuition.com Free resources for accountancy students
Free ACCA lectures and course notes | ACCA AAT FIA resources and forums | ACCA Global Community
ACCA F9 lectures ACCA F9 notes
November 14, 2015 at 3:25 pm
Thank you for a wonderful lecture Sir. This may sound a bit silly but I am failing to understand why the tax saving only starts in year 2. This is my thinking,we bought the machine in Year 0. at the end of which we will calculate the capital allowance. however the tax is to be paid in arrears so we will make the saving at the end of year 1.
In any case I thought to say the tax is on the net operating cashflows. Tax on the first year flow will be paid in year 2. Therefore we can match the saving to the operating flows. Is it a logical assumption, would it prove true in any other situation?
John Moffat says
November 14, 2015 at 3:47 pm
There is no such thing as year 0. It is time 0, and time 0, time 1 etc are points in time that are 1 year apart (so that we are able to discount in whole years).
Time 0 is the start of the first year.
Time 1 is the end of the first year – because it is one year later (we are not bothered about the odd day).
Time 1 is also the start of the second year (again, we are not worried about the odd day when is comes to discounting).
Time 2 is the end of the second year and the start of the third year.
And so on…..
For operating flows (revenue and expenses) we always assume (unless the question says different) that they occur at the ends of years.
So the first years revenue is at the end of the first year – which is time 1.
For capital allowances, the initial investment is at the start of the first year (time 0).
The first allowance will be calculated at the end of the first year (time 1). If the question says that tax is payable immediately, then the tax effect will therefore also be at time 1.
However, if the question says that there is a 1 year delay in tax, then although the allowance will have been calculated at time 1, the actual tax effect will be one year later at time 2.
November 17, 2015 at 6:47 am
Crystal. Many thanks Sir.
November 17, 2015 at 8:25 am
You are welcome
July 27, 2015 at 11:55 am
since the asset is being sold at the END of the 2nd year, shouldn’t we calculate capital allowance for the 2nd year before calculating the balancing charge/allowance???
July 27, 2015 at 3:45 pm
I don’t know whether or not you have taken Paper F6 (UK tax), but the tax rule is that there is a writing down allowance each year except for the year in which it is sold – in the year it is sold there is only the balancing charge or allowance.
(However, if you do take writing down allowance in the final year, and then calculate the balancing charge/allowance (which will obviously be different) then the net affect will be exactly the same and so you would still get full marks in the exam. Have a try and you will see what I mean )
July 27, 2015 at 4:38 pm
Yes you are absolutely right, net effect is the same, interesting. Anyways thank you so much sir!
You must be logged in to post a comment.
OpenTuition.com is dedicated to providing all accountancy students throughout the world with the resources they need to study for the major … Learn more