Free ACCA & CIMA online courses from OpenTuition
Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams
Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>
November 18, 2022 at 6:35 pm
As per below question i agree we need to deduct 1 year’s tax 30% of 20000, discount it and remove from the perpetuity value of tax. But why we did not remove 1-year discounted perpetuity value for the cash inflow also.
A company receives a perpetuity of $20,000 per annum in arrears, and pays 30% corporation tax 12 months after the end of the year to which the cash flows relate. At cost of capital of 10%, what is the after tax present value?
A. $140,000 B. $145,454 C. $144,000 D. $127,274
November 18, 2022 at 6:30 pm
Please clarify regarding below question:
AW Co needs to have $100,000 working capital in place immediately for the start of a 2-year project. The amount will stay constant in real terms. Inflation is running at 10% per annum, and AW Co’s money cost of capital is 12%. What is the present value of the cash flows relating to working capital?
A. $(21,060) B. $(20,300) C. $(108,730) D. $(4,090)
My question is how do we know that the Working capital in question will be need yearly?
It only mentioned need to have $100,000 working capital.
John Moffat says
November 19, 2022 at 11:18 am
Please post this sort of question in our Ask the Tutor Forum and not as a comment on a lecture.
Your questions have nothing to do with the management of working capital but are related to investment appraisal and are explained in the lectures on investment appraisal.
April 5, 2022 at 7:08 pm
Hi Sir, I find this topic very contradictory. For example, we would want high working capital to reduce risk of liquidity problems. But then we don’t want high receivables/inventory because there would be money “tied up” in them leading to less cash hence liquidity problems. Isn’t receivables/inventory part of a current assets hence higher working capital and that reduces the risk of liquidity problems?
April 11, 2022 at 8:12 pm
If you high receivables and high inventory then you do have high liquidity but the key thing here is is the receivables high due to higher receivables period or higher sales. what I mean here is when you have higher sales you are likely to have higher receivables but this doesn’t mean you have liquidity problem on the other hand you make have similar amount of receivables but the collection period is bigger. than in this case you have higher receivables but the liquidity is low.
December 24, 2021 at 12:20 pm
Will the ratio formulas be given to us in the exam? Or will we have to memorize the Ratio?
December 24, 2021 at 2:25 pm
They are not given in the exam 🙂
October 4, 2021 at 10:55 am
Is FFM in ACCA same as FM on opentuition?
October 5, 2021 at 6:23 am
Paper FM is one of the exams for the ACCA Qualification. Paper FFM is one of the exams for the Foundation Level.
There are similarities between Paper FM and Paper FFM but they are not the same.
You can find free notes for Paper FFM here: https://opentuition.com/fia/ffm/
September 2, 2021 at 11:06 am
If Working capital is financed by short term liability then this mean it will increse current liability. Then why we deduct CL in formula to get Working capital. It is causing a confusion.
September 2, 2021 at 3:24 pm
The definition of working capital is current assets minus current liabilities. I appreciate that it is confusing when examining how it is financed, but the finance has to come from borrowings and questions are testing your understanding of the difference between using short-term borrowings and long-term borrowings to finance the other current assets and current liabilities.
February 11, 2021 at 11:27 am
Hello Sir, you mentioned in your lecture that it is the non current liabilities that earn profit. In a pharmaceutical company that buys and sells pharmaceutical products, will this still hold true?
February 11, 2021 at 2:08 pm
Although I did not mean that current assets do not contribute to making profits (for example cash balances may earn interest), it is the non-current assets that really generate the profit.
For your example, the company will need premises for offices and storage, computers etc., and if they want to expand they will need more premises, computers etc.. Without them they will not be in a position to sell the products and make profits.
January 4, 2021 at 7:00 pm
is FAU in acca actually AA on opentuition ? urgent hai bro
January 5, 2021 at 7:08 am
No it isn’t. You can find free notes for FAU here:
November 29, 2020 at 2:40 pm
I was wondering if you could help me to understand the following:
Why current ratio and quick ratio increase when company sells some inventory on credit at a profit?
I thought that current ratio would be the same because when we sell on credit inventory become receivables and we count both receivables and inventory as current assets when count current ration.
Also, I thought that quick ratio will increase because we sell some of our inventory and we we take away less inventory in the formula. As a result, the numerator becomes larger than if we had not sold inventory and the quotient, finally, is also larger.
Hope to hear from you soon.
Kok Yau says
January 3, 2021 at 8:31 am
1) when we are selling inventory on credit with a profit, we are selling it at a higher price and result in a higher amount of receivable, e.g. Selling inventory $50 at the price $75 gives raise a receivable of $75, therefore the current asset is increased by $25 overall and make the current ratio higher.
2) for quick ratio, same example applies. We get a $75 receivable and minus $50 less if we are going to sell the inventory, give us 75-(50)=125 more of current asset less inventory figure, hence higher quick ratio.
Hope this clarify the idea.
June 8, 2020 at 7:12 pm
i am a little confused, what do you mean when you say Working capital is financed by long term ? Does this mean that the shares we issue and the loan that we get will result in cash with the company and thus increase in Working capital ? and if i got it right than the same logic goes for short term as well i.e. we get cash with us.
June 9, 2020 at 9:36 am
All companies need working capital. It has to be financed somehow and as I discuss in the lectures it can be financed either by raising long-term capital or short-term (i.e. overdraft finance). However, as I also explain, although using overdraft finance may be cheaper it is more risky that using long-term finance.
February 17, 2020 at 7:58 pm
Dear sir, it’s not very common to see three parts when calculating inventory turnover , more commonly, ( Average inventory)*360 / COGS , am I right?
February 18, 2020 at 9:36 am
True, but you still have to be prepared for anything in the exam 🙂
February 21, 2020 at 10:37 am
thank you, sir. it is a pleasure to have your class online.
December 1, 2019 at 8:26 pm
Why you have taken 518400 as credit purchases? Has not it been 842400 (756000+86400) which means Cost of goods sold + Closing Inventory.
December 2, 2019 at 12:05 pm
The question specifically states the purchases during the period (and we have no choice but to assume that they were all purchased on credit).
The cost of goods sold will include other production costs (in addition to materials).
December 2, 2019 at 10:16 pm
hmm YES Thank You Sir!
December 3, 2019 at 7:44 am
You are welcome 🙂
October 31, 2019 at 8:37 am
Thanks John. Indeed the business should manage its working capital properly. But is there an optimal level of working capital to be maintained by the business?
October 31, 2019 at 8:41 am
Not really, because it depends very much on the type of business.
October 31, 2019 at 12:24 pm
Okay sir. Thanks for the clarification.
September 28, 2019 at 4:52 pm
Good day sir, I’m the notes there seems to be a mistake with the ratios, particularly with regards to the Receivable Turnover. I only came across it while learning the ratios before to attempt the questions with you only to realise we using the same figure just in reverse order… I’ll go with the solutions just posting this here in case anyone else gets confused
September 7, 2019 at 9:05 pm
I qualified in Feb 2015, but I am here because I miss Mr John’s lectures! I used to love and enjoy watching the F9 and P4 lectures!
Open tuition is the best!
September 8, 2019 at 9:00 am
Thank you for the comment 🙂
Samuel Koroma says
July 2, 2019 at 11:23 am
Thanks John. I appreciate this video lecture. Working capital ratios are of little use unless they are compare to similar entities or industry average to that of competitors. It make sense to always look at the type of business the company is in when assessing the various ratios and the operating cycle itself.
July 2, 2019 at 4:41 pm
Correct, and I do make this point in the lectures 🙂
You must be logged in to post a comment.