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Please identify where If i am wrong
I assume that project will last for 4 years,
written down allowance is 40% and tax rate is 20% and initial investment is $1000
and will dispose at $1001-When question says that tax is paid in areas it mean that the first saving will occur in Year 2 of $80
and the last saving will come in Y5($23.2).2-If question says that tax is paid in the same year then
First saving will occur in Y1 of $80, and last saving will occur in T4($23.2).3 But when question says that there will be first years allowance of 50% and tax is paid
(i) In areas
The first saving will be of $100 and it will arise in Y2 and last saving will be of $16, arise in Y5(ii) In same year
First saving will be same $100 but will arise in Y1 and last saving will be same, $16 but will arise in Y4I would be grateful, if you identify the amount which is incorrect.
What you have written seems to be correct (but obviously depends on the exact wording of the question and does assume that the investment was at the start of an accounting period – which is usually the assumption).
-In question Neptune(6/08) it is given tax is paid after 1 year , and first capital allowance(C.A) is taken in Year 1.
-In question Burung(6/14) co tax is paid in the same year and in this question C.A is also taken in year 1 !
-In question Your business(6/09) part a it asked for the sensitivity analysis of increase in $1M in capital expenditure and so we have to calculate the C.A for evaluating the affect of additional $1m and here tax is paid in same year, here first capital allowance is taken to t0(Year zero)!Why is there inconsistency ?
Neptune was a question from the previous examiner, and he has got his tax timing wrong.
The first capital allowance saving should be at time 2 and not at time 1.Burung was set by the current examiner and the tax is correct. The investment is at the start of the first year (time 0), the capital allowance is calculated at the end of the first year (time 1) and because there is no delay in the payment of tax, the capital allowance saving is also at time 1.
Your Business was written by the same previous examiner as Neptune, and it was clear that he didn’t really understand how tax worked! However, to be fair to him, in this question he had given the flows net of tax benefit and so the only adjustments that he was expected were those related to the 4 points that he listed.
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