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  1. Good day sir, since the home country is selling packaging material to foreign subsidiary. This brings to a intercompany transactions. We have included the expenditure for foreign subsidiary part. But why didn’t we include it as an income for home country(special packaging material)? is it because it was sold at cost and no profit were earned in home country, that’s why we no need to calculate it?

    • Good day sir, since the home country is selling packaging material to foreign subsidiary. This brings to a intercompany transactions. We have included the expenditure for foreign subsidiary part. But why didn鈥檛 we include it as an income for home country(special packaging material)? is it because it was sold at cost and no profit were earned in home country, that鈥檚 why we no need to calculate it?

  2. Dear Sir

    Thank you so much for your lecture, I was crazy with add back depreciation until I listened to your explaination. Very logic and easy to understand.

  3. The Selling price should be increased by 5% from year 2 right? Why is it increasing from year 1 ? Same applies to cost of producing also. In your lectures you said that if price is given in current price terms only then we increase from year 1.
    However in this question its not given in current price terms.

    • The question says that the project will last for 5 years. At the end of the 5 years, therefore, they have the choice of either selling the land, or alternatively keeping it. However, deciding to keep it would be a separate decision that would effectively cost whatever the sales value of the land is. Whichever happens, as far as this project is concerned, the value of the land is effectively an inflow at the end of 5 years.

      • You would lose a mark!! The marks are for the workings, not for the final answer, so provided your workings are clear enough for the marker to follow then you would not lose much for this mistake.

      • Good day sir, i had the same doubt as auseklis on the land and building matter. After going through your reply on it, does it means in question either the scrap value is given or end of project market value is given, i have to treat it as an inflow for me at the end of the project year?
        Another doubt sir, just because the market value for end the project life is given for the land and building, i shouldnt take the market value and deduct the cost of the land and building to find the residual value right? It wont be equivalent of cost – acc depreciation = residual value right sir?

      • Scrap vale/sale value/market value/sale proceeds all effectively mean the same in this context and are a cash inflow at the end of the project.

        Depreciation is an accounting concept and nothing to do with it. We are interested only at the expected cash inflow at the end of the project – DCF appraisal is purely cash based.

  7. Hi John,

    Could you please explain why we do not claim back 5% of tax in Chmura’s country?
    the corporation tax rate there is only 20% whilst we paid 25% in Mehgam. Can’t we claim overpayment in the home country?
    Thank you

    • No – that is not the way tax works!

      The home country gives credit for any tax paid in the other country (and so if the home country tax is higher then they only pay the extra), but they certainly won’t repay tax paid in another country.

  8. Is there any example of workings which can be used to solve calculation part of q1 question in time? I tried several times with neat workings to finish calculation part of q1 in time but could not do more that 70%… I spend 1,7m per mark.

    • Quite frankly in the middle of an exam nobody is going to manage to finish everything in the time.
      You have to try to make sure you are getting more than 50% finished of every part of every question. Some parts you will be able to do more quickly (or get stuck sooner) and then you can go back and spend more time on other parts.
      Just make sure that every part of every question is started on a new page. By having left space on parts you have not finished then you can go back later if you have time left and do more.
      It is vital to attempt something (how ever little) for every part of every question – for a written part you can always write something (even if only one line) and get a mark.
      Far too many people who fail end up failing with 48 or 49. Just 1 or 2 extra marks would have turned it into a pass.

    • You don’t need to show all the workings for every figure.
      However it is a good idea to show the full workings for one of each of the figures.

      The reason is that if you have misread something and as a result all of your figures are wrong, then you get 0 for that bit.
      If, on the other hand, the marker can see what you are trying to do, then you will get most of the marks even if your figures are wrong.

      So, for example, if you are calculating the sales revenue for each of 5 years, and the approach is the same for all of them. Then show your workings for the first year, but then do the rest on your calculator. The marker can see what you are trying to do and provided you are trying to do it the right way then you will get the marks.

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