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Sir what is the rule with tax allowable depreciation. Why is it in year 1. When the costs are incurred in year 1 then shouldnt TAD start from year 2? Like when expenditure is in year 0, we charge TAD from year 1. Can you kindly explain the logic?
Also, if it was not mentioned that present in nominal terms, could we have presented in real terms and used real cost of capital?
TAD is always calculated at the end of the year in which the expenditure is incurred. If there is a 1 year delay in tax (as there usually is) then the first tax saving will occur at time 2.
However this question specifically says that tax is paid in the year that profits arise.
So, the first TAD is at time 1, and the first saving resulting is also at time 1.Using the real cost of capital would have been very tricky, because there is more that one inflation rate in the question.
Please also tell me why we are receiving tax on losses made. Why aren’t the losses being being subtracted from future profits?
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