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This is a doubt from Q32 page 28, answer 32 page 139 of the BPP revision kit.
For calculating the Discounting factor of the Tax on Payments why have they taken the Years 1-5 factors – the year 1 factor, and not years 1-4 factor – year 1 factor?
Is this because tax is payable one year in arrears. My doubt is why are we using the fifth year when the lease lasts only for 4 years ?It is because the tax is payable in arrears – the first payment is at time 2 and the fourth payment is at time 5. So we need the annuity factor for 2-5, which is 1-5 less 1.
Oh okay, I had to look at it a lot to figure it out properly . .
Thank You very much for your time and help.
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