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Sir if there is a 3 years project. Tax is payable at the end of each year and tax allowable depreciation is claimed as early as possible, so how should we deal 3rd year allowance either taking balancing allowance/ balancing charge. Or take 3rd year depreciation and calculate tax relief on them??
RegardsGiven that the 3rd year is the final year, there is a balancing charge or allowance of the difference between the sale proceeds (if any) and the tax written down value.
Have you watched my free lectures on investment appraisal with tax?
But sir in FM chapter 4 “test your understanding 13” it takes tax relief on tax allowable depreciation not on balancing allowance. I don’t understand
Sir I have watched your video but there is a confusion with a Q. It says ( 3 year project) tax is paid at the end of year and tax relief is claimed as early as possible. And it should take balancing allowance/ charge in 3rd year but instead it is taking tax depreciation and tax relief on depreciation So I am confused with the answer. Does it affect if tax relief is claimed early but tax is paid at the end
RegardsI assume your reference to ‘test your understanding 13’ is referring to the Kaplan text book. I do not have the Kaplan books (only the BPP Revision Kit) and so I cannot check what they have done.
Exam questions do not say that tax relied is claimed as early as possible – tax allowable depreciation is always calculated at the end of accounting periods. What exam questions do sometimes say that tax is payable immediately (as opposed to there being a one year delay in tax) in which case the tax saving occurs at the end of the accounting period instead of one year later.
What I explain in my lectures is correct, and unless there is some extra wording in the question you are referring to (which is unlikely) it seems as though it is wrong. There should be a balancing charge or allowance in the final year.
(If you are watching my free lectures then you do not really need the text book because the lectures are a complete free course and cover everything needed to be able to pass the exam well. The essential book (however you choose to study) is the Revision Kit (or Exam Kit) from either Kaplan or BPP because that is full of past exam and other exam-standard questions for practice, and practice is vital to passing the exam.)
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