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ACCA F9 lectures ACCA F9 notes
April 27, 2016 at 9:28 pm
in this example 4 chapter 8 i got a question.
why in the cash flow you did not include the 20% from the overheads?
John Moffat says
April 28, 2016 at 9:18 am
I do actually explain in the lecture.
The question says that 20% of overheads are absorbed (charged) to the new project, but this does not mean that the total overheads increase. We are only interested in any extra cash flows as a result of doing the project, so if the total overheads do not change then there is no extra cash flow.
April 18, 2016 at 9:50 pm
I am a little confused that the inflation rate for labour is different than the one for material. Should the rate not be equal for the same period?
April 19, 2016 at 7:36 am
But why? Although there will be a general rate of inflation in a country, that is only an average – not everything will inflate at the same rate. Think about oil prices – sometimes they go up more than other goods – sometimes the go up less than other goods.
November 3, 2015 at 3:25 pm
Great lecture Sir.
My question is if the net operating flow was a loss, i.e. a negative value (401) in the first year how would we deal with the tax on operating flows and in tax savings on capital allowances for the next year?
Thanks in advance.
November 3, 2015 at 3:49 pm
We always assume (in Paper F9) that the company is already making profits from other projects and is therefore already paying tax.
Therefore if the operating flows from this project are negative then it will save tax (because the total profit of the business will be lower).
So we deal with the tax on operating profits in exactly the same way as always – if there is a positive operating flow then there is a tax outflow; if there is a negative operating flow then there is a tax inflow.
Capital allowances are not affected – the tax savings on them will be the same whatever happens.
November 3, 2015 at 8:49 pm
I got it. Thanks Sir.?
November 4, 2015 at 8:15 am
You are welcome 🙂
May 9, 2015 at 8:47 pm
sir what do we need to do if we got extra overheads relevant to this project
May 10, 2015 at 8:50 am
If the are extra (incremental) overheads payable by the company as a result of doing the project, then it is a relevant cash outflow (of the extra amount) when getting the net cash flows each year.
April 22, 2015 at 12:01 pm
Why is the material cost 864 in the first year and not 800? Wouldnt you buy the material on day one so therefore there would be no inflation in a day hence why Im confused why we do not use 800.
The lecture is saying if we do buy the machine it would be next year that we would buy the material, but if we decide to go ahead with the project and buy the machine tomorrow then wouldnt we then buy the material tomorrow aswell so therefore no inflation?
April 22, 2015 at 12:14 pm
We assume that the price increases on the first day of each new year. It may be impractical, but that is the assumption we make.
Also, the term “current prices” automatically always means in the exam that in one year it will inflate by one year, two years inflation in two years time, etc..
April 21, 2015 at 10:50 pm
what would you do with depreciation if there was no capital allowances?
April 22, 2015 at 8:03 am
You would ignore it because it is not a cash flow.
(Depreciation is always ignored. Capital allowances are only considered because of the affect on the tax.)
April 22, 2015 at 2:05 pm
so say for example the question said depreciation is absorbed into the fixed costs, would you have to take away depreciation from the fixed costs?
April 22, 2015 at 2:13 pm
Yes – you would. We are only concerned with cash flows and depreciation is not a cash flow.
April 21, 2015 at 1:36 pm
one things i am confuse about is , if we dont buy the material now on year 0, then how we gonna produce the product to sale on year 1?
April 21, 2015 at 2:29 pm
Have you watched the previous lectures, because I spend time on the timing of the cash flows in them.
It is not ‘year 0’ it is time 0, which is a point in time. Time 0 is ‘now – the start of the first year. Time 1 is one year from now – the end of the first year / start of the second year, and so on.
We always assume that operating cash flows occur at the ends of year (unless told differently in the question), so although we will be buying materials throughout the first year, we assume that the cash flow occurs at then end of the first year i.e. at time 1.
April 21, 2015 at 5:03 pm
yes, i have watched the previous lecture. i got your point now, i have figure out the where i have made a mess, the mess was on different between time0 and year o. you made it very clear now. thank you so much for your kind reply. its so nice of u . thumbs up…:)
April 4, 2015 at 3:27 pm
in the NPV calculation, for discount factor calculation what do we use if we have given only real cost of capital 5.7%
inflation is 5%
do we use the formula (1+nominal rate)=(1+real rate)x(1+inflation rate), i used this formula but still does not give a round % to use for discount factor.
April 5, 2015 at 12:29 am
In that case you would discount using the nearest % – the examiner expects you to use tables rather than calculate the discount factors exactly.
However it is very unusual to be asked to use real rates. Usually we inflate the flows and then discount at the actual cost of capital
April 6, 2015 at 6:54 pm
Thank you so much
February 19, 2015 at 6:39 am
Thank you John for this beautiful Lecture.
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