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hello, im currenctly in this borrow/buy decision chapter.and i would like to know why is is that some capital allowances are claimed in year 0 while some in year 1?thank you in advance 😀
Have you watched the lecture on this chapter? If not, then do because it explains it in detail.
The reason is that 0 is not a year, but it is one point in time. 1 again is not a year, it is one year from now.
If ‘now’ (time 0) is the last day of an accounting period, then the first capital allowance will be calculated immediately.
However, if ‘now’ (time 1) is the first day of an accounting period, then the first capital allowance will be calculated at the end of the accounting period – that is in one years time.thanks for the video..so just to double confirm..can i say year 0 is the beginning of the 1st year,and lease payment are paid at the start of each year,thats why its computed in yr 0.As for the tax saving for lease payment..year 1 is like the end of 1st year so there will be tax saving in year 1,however tax is payable a year later,so thats y its computed in year 2?…….and as for capital allowances,asset is bought at the end of the accounting period 2010,so i agree that we claim it at year 0 however tax is payable one year later so again,tax saving only occurs starting from year 1.
sir,i did some past year papers and the question did not say the asset is bought at the end of accounting period.and the answer claimed its capital allowances on year 1 and tax payable on year later,so tax saving from capital allowances is on year 2.why is it that the capital allowances are claimed in year 1?do we claim our capital allowances in year 1 as d default basis when the question did not say when the asset is bought?
secondly,there is this question i did,it did not say when the asset is bought.however it does say that the company is able to fully utilise its allowances throughout the project and its capital allowances is claimed at year 0…
ive talked to some students who passed their f9.and they told me capital allowances are always claimed on year 1 unless the question told me to claim it at year 0.so im really confused here 🙁
What you say in your first paragraph is correct.
It is really only lease and buy questions where this problem is likely to appear.
In other questions, you are not usually told whether the asset is bought on the first day of an accounting period or on the last day. In this case just assume that the first capital allowance saving occurs at the same time as the first tax payable on the cash flows (with a one year delay in tax this means it is first at time 2).
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