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Sir,
In buy option why do we take the tax saving from year 1 onwards and why is it taken for 5 years?
but when we take it in lease option the tax savings is from year 2 onwards for 4 years..
in previous chapters (7 & 8) we usually take the tax saving from 2nd year onwards if we pay tax 1 year in arrears..
Waiting for reply.
Thank you
Manan
But I explain the reason in my lectures where I work through this example.
(I assume that you are not using the notes without watching the lectures, because that would be pointless. If you are not watching the lectures for any reason then you must buy a Study Text from one of the ACCA approved publishers and study from there.)The question says that we buy the machine on the last day of an accounting period, therefore the capital allowances would be calculated immediately and the tax saving would occur one year later.
The first lease payment is made at the start of an accounting period, therefore they will reduce the profit calculated at the end of the accounting period and the resultant tax saving will occur 2 years later.
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