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Sir,
1)If lease payables at start of year (tax paid in arrears
Then both tax payment and Savings in year 2 right?2)Secondly if lease or any cap invest at end of current financial year (tax paid in arrears)
Then tax payment and Savings in year 1 right?3) If lease rentals payables at end of period then would tax savings be in
Period 31) is correct
2) is not correct. If the payments it at the end of the year (time 1) then the tax payment/saving would be one year later i.e at time 2.
3) is not correct. It is the same rule at in (2)
Sir,
In 2nd point I meant:End of year in which we are appraising investment.
In lectures you said that if we are buying at end of period of appraisal then.
Tax would be calculated at 0 and paid at 1.And if we are buying at end of current financial year would there be an additional WDA
Ex if PPE life is for 4 years
Then since we got WDA1 at period 0
+4WDA = 5 WDA
Is it correct?What you write is correct if we are buying at the end of the current year (which is time 0).
Usually we assume that we are buying on the first day of the new year, but watch out for the situation (as in the lease buy example) where the question specifically says that it is bought on the last day of the current year.
If it is bought on the last day of the current year then yes – there will be 5 years of allowances. They get the allowance for every year in which it is owned (even though it is only owned for 1 day in the year in which it is bought 🙂 But remember that in the final year there is a balancing allowance or balancing charge of the difference between the sale proceeds and the tax written down value, as explained in my lectures on investment appraisal with tax.
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