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Cashflows timing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Cashflows timing

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • August 6, 2021 at 2:53 pm #630599
    AshleyMarc1997
    Member
    • Topics: 48
    • Replies: 24
    • ☆☆

    In standard NPV appraisal questions, Cashflow Timings of both Taxation & Tax-savings on Capital Allowance will be the same.

    If Tax is not in arrears (i.e. paid immediately) then Tax & Tax-savings on Capital Allowance will be [Time 1]

    If Tax is in arrears (i.e. one year later) then Tax & Tax-savings on Capital Allowance will be [Time 2]

    This is what you said in your lecture that the Timing of Tax-savings on CA depends upon Tax timings.

    Please correct me if I am wrong anywhere.

    Thanks for your time I do appreciate your work 🙂

    August 6, 2021 at 3:32 pm #630604
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51538
    • ☆☆☆☆☆

    What you have written is correct 🙂

    September 7, 2021 at 4:30 pm #634763
    AshleyMarc1997
    Member
    • Topics: 48
    • Replies: 24
    • ☆☆

    I asked this question from the perspective of the usual NPV questions, not from Lease & Buy point of view.

    Is it true that Net Operating Cash Flows & Machine is bought usually on the first day of an accounting period and tax is calculated at the year-end.

    For Example:
    If Net Operating Cash Flows occur on the first day (1.1.2017) then tax is calculated at the year-end (31.12.2017) but the tax is paid on Time 1 (1.1.2018) because one day doesn’t make any difference; And if tax is in arrears then it is paid one year later at Time 2 (31.12.2018).

    BUT if Net Operating Cash Flows occur at the last day (31.12.2017) then tax is calculated immediately at this very last day (31.12.2017) but the tax is paid on Time 0 (31.12.2017); And if tax is in arrears then it is paid one-year later at Time 1 (31.12.2018).

    Please correct my first sentence and the two examples that I ask you!

    September 7, 2021 at 4:49 pm #634772
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51538
    • ☆☆☆☆☆

    What you have written is correct (except for the fact that the tax rules are no different at all in lease and buy questions than in any other questions – it is just that the timings of the initial flows are often different than usual).

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