We could, but usually we don’t because if we are comparing this year with last year then although we could calculate the average receivables for this year, we would not have enough information to calculate the average receivables for last year. For that reason we usually. use year end receivables. However it depends on the question.
If we are given opening and closing inventory, can’t we work backwards in order to arrive at purchase and use it as “Credit Purchases” as we do assume all of the sales on Credit? If yes, can’y we do it in the example you have done as we know opening and closing inventory of 2007?
Yes, but because the relevance of the figure is when it is compared with the previous year, it would only be sensible to do this if you could do the same for the previous year as well. Otherwise you would not really be comparing like with like.
They are both measuring the same thing, and so when using it for comparison between companies or between years you can use either (provided obviously you are consistent) because the discussion around the results would be the same. (Unless obviously the question specifically says which way to measure it).
I explain in the lecture that using the year end receivables can br misleading and that maybe it would be better to use the average receivables. However normally we only have the financial statements at the end of the year and therefore use the year end receivables.
As far as adding the receivables for both years – why on earth would we ever do that? It would be nonsense, and is basic financial accounts – surely you have either taken Paper F3 or were exempt and therefore studied it at university! The receivables at the end of last year will have paid us this year.
Sir, on the ROCE calculation, I am not comfortable with adding the present years retained profits to the reserves. Why not add the difference of 990-681 only? Wasn’t the profit earned on the level of last year’s investments? Thank you in advance!
Retained earnings on the SOFP always increase by the current years retained profit! 990 – 681 = 309, which is the current years retained earnings. Again, this is basic financial accounting.
What about Interest cover, Dividend yield ratios?
You should know these from Paper F3, but they are more relevant to F9 than F5.
So IF opening and closing receivables is given, we add opening and closing then divide by 2
so Recivable days formula would be
((Op. + Cl. TR)/2) / sales ?
We could, but usually we don’t because if we are comparing this year with last year then although we could calculate the average receivables for this year, we would not have enough information to calculate the average receivables for last year.
For that reason we usually. use year end receivables. However it depends on the question.
That makes perfect sense! Thank you so much Sir.
You are welcome 馃檪
Hi Sir,
I have a question regarding Payables days…
If we are given opening and closing inventory, can’t we work backwards in order to arrive at purchase and use it as “Credit Purchases” as we do assume all of the sales on Credit? If yes, can’y we do it in the example you have done as we know opening and closing inventory of 2007?
Yes, but because the relevance of the figure is when it is compared with the previous year, it would only be sensible to do this if you could do the same for the previous year as well. Otherwise you would not really be comparing like with like.
Thank you very much sir ?
:)*
You are welcome 馃檪
Sir,
In calculating the gearing you gave us two formula and each one gives different figures, so in what circumstance they are used.
They are both measuring the same thing, and so when using it for comparison between companies or between years you can use either (provided obviously you are consistent) because the discussion around the results would be the same.
(Unless obviously the question specifically says which way to measure it).
Thank you
You are welcome 馃檪
Sir, I have another question on the Receivables Days:
Total receivables as it is part of the Formular indicates the outstanding receivables at the closing date only.
How can we draw conclusions on how fast the business was in collecting its receivables during the year.
And here again, we do not distinguish between the receivables for the year (2007 only) and total outstanding receivables (2006 plus 2007)
I am a bit confused there.
Could you please explain that?
I explain in the lecture that using the year end receivables can br misleading and that maybe it would be better to use the average receivables. However normally we only have the financial statements at the end of the year and therefore use the year end receivables.
As far as adding the receivables for both years – why on earth would we ever do that? It would be nonsense, and is basic financial accounts – surely you have either taken Paper F3 or were exempt and therefore studied it at university! The receivables at the end of last year will have paid us this year.
Sir, on the ROCE calculation, I am not comfortable with adding the present years retained profits to the reserves. Why not add the difference of 990-681 only?
Wasn’t the profit earned on the level of last year’s investments?
Thank you in advance!
Retained earnings on the SOFP always increase by the current years retained profit! 990 – 681 = 309, which is the current years retained earnings. Again, this is basic financial accounting.
Pls sir , The solution of the reture of capital employed how did you get the total longterm capital. I do not understand how you got it thanks
Am so sorry i have seen it sir thanks
No problem – I am pleased that you found it 馃檪