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April 15, 2021 at 11:11 am
Thank you for this lecture. If I may ask, why is the scrap vale of $10,000 not included as part of the total cash flow of $100,000 in calculating the total profit p.a.?
John Moffat says
April 15, 2021 at 2:01 pm
The scrap value is never a profit in financial accounting, and this is an accounting measure.
April 15, 2021 at 9:01 pm
Thanks for the clarification
April 16, 2021 at 8:59 am
You are welcome 🙂
August 14, 2020 at 9:43 pm
ARR and Average Investment Method Same Thing? If not Please tell Me What is difference between Them?
August 15, 2020 at 8:05 am
They are the same thing.
June 10, 2020 at 2:24 pm
For ARR and payback period,
Could we use the formula like
Cash inflow= profit + depreciation
By the way , I thought to ask this question in Ask to Tutor, but I couldn’t find it for FM.
June 10, 2020 at 2:57 pm
ARR is calculated using the average profit, payback period is calculated using cash flows (which are the profits before depreciation).
There is an Ask the Tutor Forum for Paper FM. Click on the ‘forums’ tab and you will see it on the list!
June 10, 2020 at 11:10 am
In example 8, the net operating cash inflow is just a simple cash flow or it is net operating profit ?
Because for operating profit, we should not do depreciation.
June 10, 2020 at 2:59 pm
Cash flow means what it says – cash! That is not the same as the profit.
June 10, 2020 at 11:06 am
Is ARR and ROCE is same?
June 10, 2020 at 3:00 pm
ARR is calculated as a way of appraising an investment, and use the average expected profit.
ROCE is calculated for a company as a whole and is calculated at the end of each year (think back to Paper FA (was F3) or whatever exempted you from it).
April 26, 2020 at 12:39 pm
I didn’t get the point of average book value.
Book value formula = cost – depreciation
If I divide 62,500 by 2 in order to compute average of book value so the answer will be 31,250.
Just clear my concept through this process of average book value.
April 26, 2020 at 2:35 pm
To get the average during the year you add together the values at the start and end of the year, and then divide by 2.
May 1, 2020 at 11:50 am
got the point.
May 1, 2020 at 6:39 pm
August 1, 2019 at 11:37 am
Am cool with these approaches. Thank you sir
February 12, 2020 at 6:56 am
Thank you for your comment 🙂
April 19, 2019 at 12:45 pm
Hi John, the average profit divided over 4 while average book value divided only over 2.
shouldn’t be also over the useful life of the asset ?
April 19, 2019 at 3:27 pm
No. The average book value of the asset is the average of the value at the start and the value at the end – we add them together and divide by 2.
Do watch the lecture again, because I do explain the reasoning.
March 14, 2019 at 9:10 am
To calculate an average of two numbers, you add them together and divide by 2.
If the scrap value had been zero, then the average value would have been 80,000/2 = 40,000.
The value at the end is more than zero, and so the average value is higher than 40,000.
March 17, 2019 at 3:52 pm
March 14, 2019 at 5:59 am
Sorry but I don’t understand the portion related to the average book value in example 8.
If the machine costs $80 000 and $10 000 scrap value. Why do you minus the $10 000? In the example you had added on the $10 000. I’m a little confused on that portion.
Thank you in advance for your help!
February 11, 2020 at 10:34 pm
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