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Hi in the bpp book sometimes it has the tax allowable depreciation in the first year and sometimes in the second year (following if tax is paid in arrears), what is the rule for it to be in the first year or to start in second year -I can’t see any wording to make it clear? Thank you
It depends on when the initial investment occurs (whether at the end of an accounting period or (more usually) at the start of an accounting period) and also whether tax is payable immediately or with a one year delay.
If, as is the usual case, the investment is at the start of the first year (i.e. time 0), then the first capital allowance is calculated at the end of the first year (time 1).
If tax is payable immediately, then the tax effect is then at time 1.
If, on the other hand, there is a one year delay in tax, then the first tax effect due to the allowances is at time 2.For a full explanation you need to watch my free lecture on investment appraisal with tax.
(If you watch all of our lectures, in order (with the free lecture notes in front of you), then you do not need a Study Text (only a Revision Kit). Our lectures are a complete course covering everything you need to be able to pass Paper F9 well).
I have watched all your lectures, I only study with you guys and buy the bpp revision book, I think my mind is on overload at the moment and struggling to remember things that I did know, thank you so much for the reply.
I can understand – the nearer to the exam the more overloaded your mind gets.
Best is to make sure you take breaks and relax a bit, then you usually find what seemed hard before suddenly becomes more obvious 🙂
Thank you and thank you for the best tuition, I would never have been able to get this far without open tuition.
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