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Rule:
i) If the first cash flow is on first day of accounting period then first tax effect is at Time 2
ii) If the first cash flow is on last day of accounting period then first tax effect is at Time 11) This rule that you gave in the last part of the Lease & Buy lecture about Tax timings (which is specifically a problem for only lease & buy questions); Does that affect the timing of Tax or Tax-saving on Capital Allowance?
2) Is that correct that this rule will only be applied when the tax is in arrear but not when tax is not in arrears [true?]
4) I do just want to know that this rule will change the timing of tax cashflows only or it does change the timing of tax-savings on capital allowance (or both Tax & Tax-saving on CA cashflows timing will be changed)?
The tax rules used in lease buy questions and the same tax rules used in all NPV questions (as explained in my free lectures on investment appraisal with tax).
Tax is payable on the taxable profit, which is the operating cash flows less the TAD (as per Paper TX). For Paper FM it is easier to calculate the tax on the operating cash flows and the tax saving from the TAD separately, but the timing of the tax flows is the same for both. Again, I do spend time explaining this in my lectures on investment appraisal with tax.
- Topics: 44
- Replies: 26
- ☆☆
I understand NOW after watching your lecture again & again!
Rule:
i) If the first cash flow is on first day of accounting period then first tax effect is at Time 2
ii) If the first cash flow is on last day of accounting period then first tax effect is at Time 1This rule is only applied when tax is in arrears [as u said in your lecture – correct?]
Examples:
1) Lease Payments are payable at the start of the accounting period = Tax-saving on Lease Payments will be at [Time 2]2) Machine was bought on the last day of the accounting period = Tax-saving on CA will be at [Time 1]
3) Can we apply the same rules when the Tax is not in arrears (i.e. paid immediately)?
Please correct me here too. I appreciate your time THANKS 🙂
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