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Hi John again sorry to bother you.still confused about tax timing (corporation tax and tax allowable depreciation).KAPLAN question DYSXA DEC 2016
cash flow is in T1 and corporation tax is 20% one year in arrears.intial investment is in year 1.tax allowable depreciation 25% is assumed to be paid at the start of first of of operation.I put corporation tax after calculation in T2 and tax allowable benefit in T1(as in question it said it is assumed to be paid at the start of first year of operation.
But when I saw the answer in the KIT they put tax allowable benefit in same year of corporation tax (T2)
I donot understand why?I do not have the Kaplan books – only the BPP Revision Kit – and so I cannot comment on this specific question.
However if the investment was made at the start of the first year (time 0) then the TAD will be calculated at the end of the first year (time 1) as per normal tax rules, and the cash flow resulting will be one year later (time 2).
Have you watched my free lectures on investment appraisal with tax, because I do explain this in detail and the example you quote is the normal situation for most questions.
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