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Hi tutor,
I am confused with this sentence:
“Tax allowable depreciation is available on the cost of the machine at the rate of 25% per annum reducing balance. A full year’s allowance is given in the year of acquisition but no tax allowable depreciation is available in the year of disposal. The difference between the proceeds and the tax written down value in the year of disposal is allowable or chargeable for tax as appropriate.”
What I did:
– Calculated tax allowable depreciation and then it’s tax savings
– discounted total tax savings from tax allowable depreciation arising in year 2 (tax is payable in arrears)The answer:
-Calculated tax allowable depreciation and then it’s tax savings
-Discounted the tax savings arising in each year 1-4 (project lasts 4 years)Hope you could help me on this. Thanks 🙂
Assuming that you are referring to the question Leaminger, then the BPP answer is correct.
The machine is purchased on 31 December (time 0), which is the end of their accounting year. Therefore the first capital allowances will be calculated immediately (at the end of the accounting year) and the first tax effect will occur 1 year later i.e. time 1.
I do suggest that you watch my free lectures on lease and buy because the example that I work through in the lecture has exactly the same problem with regard to the dates and timings.
Guess I need more understanding on this. I will watch your lectures now, thanks for the quick response 🙂
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