- May 27, 2021 at 6:04 pm #621947AshleyMarc1997Member
- Topics: 48
- Replies: 24
Hello Sir. Please could you correct me if I am wrong anywhere.
1) Since the Tax & Capital Allowance both occur at the end of each year. The tax is actually payable either immediately (Time 1) or one year later in arrears (Time 2) depending on what is written in the question.
2) Taxation & Capital Allowance are calculated by the Tax Authority & they are calculated at the end of each year so the first Tax payable would be (at Time 1) if not in arrears & so does the Capital Allowance.
However, if Taxation is in arrears (one year later) then the Tax payable would be (at Time 2) & so does the Capital Allowance.
3) BUT u said in your Lease & Buy lecture that Capital Allowance occur at the end of the year in which it is bought (like we bought the machine on the last day of current financial year which is Time 1 even though the Tax was in arrears) so in Lease & buy question Capital Allowance do occur in the year it was bought
BUT in simple NPV questions, Capital Allowances occur at the same Time in which Taxation occur.
Completely confused with the timing of Capital Allowance either they occur with the investment year (Time 0) or in the year when Tax incur (could be Time 1 or Time 2)
Need your help dearly!May 28, 2021 at 8:19 am #621992John MoffatKeymaster
- Topics: 57
- Replies: 51563
You statements (1) and (2) are correct.
In the lease and buy question the rules remain the same.
The asset is bought on the last day of the current accounting period (time 0).
The capital allowances are calculated at the end of the accounting period, so they are calculated at time 0. The tax saving occurs one year later which is time 1.
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