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Hi
I need to ask that when the question says:
1. Tax is payable at the end of the year in which the liability arises.
2. Tax is payable one year in arrears.What is the difference between the two? Are they both same?
Thanks
No they are not the same.
For an inflow at time 1, if tax is payable at the end of the year in which the liability arises then the tax is payable at time 1.
If the tax is payable one year in arrears, then the tax is payable at time 2.
This is all explained in detail in my free lectures on investment appraisal with tax. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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