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Sir,
In a question I came across, it’s mentioned that capital allowances on the assets are claimed in arrears and tax payments are also in arrears, how do we account for such a case?
Would Y1’s capital allowance effect tax of Y1 or will it be used to compute tax Y2 which will be paid in Y3?
I’m confused and would appreciated your help!
You need to watch the free lectures on this, because it is explained in detail in the lectures (and I can’t type them all our here 🙂 )
Best is to watch the Paper F9 lectures on investment appraisal with tax, because it is revision of Paper F9. The paper F9 lectures deal with it in detail whereas (because it is revision) the Paper P4 lectures revise it very quickly).
I’ve done Your business (J09) and this question focuses on the tax savings on capital allowance. I have two problems:
(1) indirect allocated costs are not relevant. I think the allocated costs are relevant to the project and should be deducted from the cash flows. So we should do nothing about them.
(2) per answers, the first year allowance takes place in year 0 rather than Year 1. Does it mean that all the capital allowance takes place at the year when the capital is invested.
(3) one more problem, please. The depreciations start from the year when the asset is bought no matter whether it is used or not,right?
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