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Just wanted to confirm something, that I’m slightly confused about.
Unless otherwise stated, Tax cash outflow is in T1, and depreciation benefit is also in T1.
If tax is paid in arrears, tax is paid in T2 and depreciation benefit is also in T2.
What about if tax is paid in arrears, but you can claim the depreciation benefit at the START of year 1? (I believe there was a question like this in the Dec ’16 exam)
From your lectures, I understand the start of year 1 = T0, but as tax is paid in arrears does that mean we put the depreciation benefit in T1, with tax being in T2?
I think you have misread the December 2016 question.
The investment was at the start of the first year (time 0). The tax allowable depreciation (capital allowance) would be calculated at the end of the first year (time 1). The tax benefit therefor occurs at time 1 if there is no delay in tax, or at time 2 if there is a one year delay in tax (as was the case in this question).
The simplest way in the exam is always to bring in the first tax saving on depreciation in the same time period as the first tax payment of tax on operating flows. That will always work 🙂
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