Help with Chapter 9 Example 3 Lease calculation

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May 3, 2011 at 12:15 pm #48309
zoe12345
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Another question on Example 3 in chapter 9 – in the leasing calculations where does the £10,500 tax saving per year come from? I can’t seem to make sense of the answer at the back – any ideas would be welcome!

Thanks
May 25, 2011 at 5:23 am #81406
Ruby
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That would be 35,000 * 30% = 10,500. Net profit drops due to the lease payment, so you pay less tax on that.

However, I do have another question. Why the tax saving on CA’S in this question starts year 1 rather than year 2? And why it is 5 years not 4 years, i thought it should be same as project life.
May 30, 2011 at 6:56 pm #81407
karmuks
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I guess it starts in year 1 because machine was bought on the last day of current financial year.So CA will be next year e.g.year 1. If machine would be bought in the beginning of the year 1 then tax savings would incur in year 2.
Hope im right
May 30, 2011 at 7:00 pm #81408
karmuks
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And scrap will be after year 4 (end of project) and tax saving will be then in year 5. I think main reason is when the machine was bought, scrap will incur as normal like we usually do.
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