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Dear tutor,
The Q89 of BPP Practice and revision kit clearly states:
“$250 million of the investment will attract 25% per year capital allowances on a reducing balance basis available with a one year lag”I understand this as the tax relief should be accounted with a one year lag (i.e. in the next year).
So, why the answer includes the tax relief in the same year?
What could it be?
A venial sin of decent market leader?
Or, shame on me, my deep misunderstanding?
Thank you in advance 🙂
I am really sorry but I do not have the latest edition of the BPP Revision Kit.
However, if you tell me the name of the question then I will be able to find it (and then I will tell you if it is a venial sin of your deep misunderstanding 🙂 )
The question name is “Sleepon” which is from December 2005 exam, though it’s amended.
P.S. The question is not available at the ACCA site, but it’s good to work with it, as the examiner is new and we must be prepared to everything 🙂
I know the question Sleepon well (and the examiner is not so new know – he has been the examiner for four years 🙂 )
There is a 1 year lag in the capital allowances. The answer assumes that both payments are made during the first year (half immediately and half in one years time) and therefore the allowance would be calculated at the end of the first year and the first saving therefore being one year later – i.e. time 2.
For four years? Really? Q1 December 2014 looks like as if the examiner is completely new 🙂
Thus, I have not seen the term “multiplier” in the BPP study text which is “content reviewed by ACCA’s examining team”. Perhaps, I missed it, though it’s difficult to find anyhow 🙂
Has he ever used this term before? I’ve never seen it in any questions 🙂As for the question, I see the logic like as follows:
– it’s not mentioned how income tax is witheld => the same year when the profit is generated;
– it’s mentioned that capital allowance has a one year lag => we use the one year lag for it;
It’s clear, thanks a lot.
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