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Hello sir
I have watched your lecture on lease vs buy and as you have told there is a slight difference between other questions and this question when tax arises when buying
Dink co question is solved in a different way the only confusion is the tax timings which is different from the way you taught and dink co is similar to the example in your notes(chapter 9)
It would be very nice of you if you can just go through dink co question in bpp and tell me if i am missing smth in part a (i)The answer Dink deals with the tax is using the same ‘rules’ as in my lectures.
The tax is 1 year in arrears.
So for leasing, the lease payments are made in advance so the first payment is at time 0. The tax will be calculated at the end of the first year (time 1) and so the first tax saving is 1 year later which is at time 2.
For buying, the purchase is made ‘now’ (i.e. at time 0). The first TAD is calculated at the end of the first year (time 1) and the first tax saving is one year later at time 2.
The difference from my example is that in Dink we purchase the machine at the start of the first accounting period (time 0) whereas in my example it is purchased on the last day of the current accounting period. That is still time 0 (one day makes no difference to the discounting) but it means that the first TAD is calculated at the end of the accounting period (time 0 because it is bought on the last day) and the first tax saving is one year later which is time 1.
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