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Dear Mike,
I have few questions with regard Mocha question:
1. How should I treat the “warranty Provision”? Like the Payable?
Decrease of warranty provision to be deducted whereas increase the warranty to be added back.
2. In the question there was an investment income of 1100 which is added back to the Profit before tax to calculate the operating profit.
The breakdown of the Investment is
Dividend received 200
Profit on sale of investment 400
Increase in fair value 500Only dividend has been added back in the investment activities
Am I right to say that the others items have been excluded because are not cash?
Additionally, can direct method cash flow be examined?
Thanks in advance for your help.
Best Regards
Gabriella
“Decrease of warranty provision to be deducted whereas increase the warranty to be added back.”
Correct
“an investment income of 1100 which is added back to the Profit before tax to calculate the operating profit.”
Please tell me that this is deducted to arrive at profit before tax and not added as you have written
“Am I right to say that the others items have been excluded because are not cash?”
Correct
“Additionally, can direct method cash flow be examined?”
Of course direct method can be examined … but I cannot recall the last time that is WAS examined except for a 5 mark part (b) chat about “Why is the direct method not used much in practice?”
OK?
Dear Mike
“Please tell me that this is deducted to arrive at profit before tax and not added as you have written”
Yes, It was too tired when I wrote this message… What I meant it was deducted.
I followed your lecture during which you mentioned the reasons why the direct debit is not use much in practice.
Thanks for your reply and have a nice day ahead
Gabriella
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