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In FUBUKI CO (DEC 10),
1. In the DEC 10, FUBUKI CO, in the question why only 1million out of 2.5 million is included under attributable fixed cost ?? Why don’t they include the whole 2.5million ?
2. For the APV part, in DEC 10 FUBUKI CO in the annual tax relief they have used 14,488. However if im not wrong shouldn’t we suppose to deduct 604 from 14,488 for the annual tax relief ?
1. The question says that 60% of the overheads are centrally allocated. This does not mean that there are extra overheads – the company can allocate the existing overheads any way they want for profit purposes, but that will not affect the cash flow.
Only the other 40% are therefore extra overheads.
Please watch my free lectures (and if necessary the relevant F9 lectures, because this ia revision of F9).2. Why on earth do you want to deduct it? The interest is based on the amount actually borrowed. The answer assumes that the amount borrowed was the amount needed to finance the project, but the examiner does state in the answer that if you assumed the amount borrowed was to so as to cover the issue costs as well, then the interest would be on the amount for the project plus the issue costs.
2. Currently, i’m using updated Kaplan Textbook for P4 and for the calculation of PV of the tax shield, it specifically states that
” total amount raised by loan – don’t forget to add the issue costs”.
When they actually calculate the gross value of bank loan, they have included the issue cost and the total amount of bank loan.
Yes – so why did you want to deduct it?
What you have written is exactly as I answered before and as the examiners answer states in bold. The interest is on the amount actually borrowed.
The question does not make it clear whether the issue costs were paid from cash they already had (in which case the amount borrowed was just the amount needed for the project), or whether the amount borrowed has to cover the issue costs as well as the cost of the project, in which case the amount borrowed is the amount for the project plus the issue costs.
Because the question did not make it clear, the examiner allowed you to assume either of the two.
oh sorry John Moffatt
Not deduct the issue cost from 14,488. I think i had some sort of typo
I should have written “why didn’t they add 14,488 with the issue cost of 604”
So since the question was not clear, examiner allowed candidates to use either to use 14,488 or 15,092(14488+604) for calculating annual tax relief ????
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