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Thanks a ton for clearing that up !!!! 🙂
(Sorry didn’t realise this was the wrong forum )
I have written the relevant information of the question below. Can you tell me on what basis the tax benefit occurred at T1 instead of T2. Thankyou so much !!
Victory Co. is considering the purchase of new equipment which would enable the company to expand its operations. The equipment will cost $1.3 million have a 3 year life at the end of which will have a scrap value of $600000.
The equipment will mean Victory further requires factory space at an annual rental of $80,000, payable in advance, with the first payment being made on the day equipment is purchased.
If Victory Co. buys the new equipment it can claim tax allowable depreciation on the investment on a 25 % reducing balance basis. The Company pays taxation it the year in which it relates at annual rate of 30%. Victory uses cost of capital 10%.