[alighere]

By the way, I understand that if interest rates are EXPECTED to go lower, lets say in five months time, it is less attractive to borrow long term NOW, but why would be cheaper too? How is that that, expectations that interest rates would fall mean it was cheaper to borrow long-term?

[alighere]

Hi Mike. What I meant to have said is that if prior period audit hasn’t been done and the client has asked us to audit 2 periods, 2015 and 2016. Can we provide 1 audit opinion for both periods. Doesn’t Isa 710 comparative financial statements give us that permission

[alighere]

Neither would circularisation of payables, yet it is listed as a test for completeness for payables. Odd.

[alighere]

But the circularisation could identify customers whose balances are understated in the clients records, which would confirm completeness.

[alighere]

Hey John. Please help me. Is my answer correct.

A Co is considering increasing the period of credit form one calendar month to 2 months. Annual sales are currently 2.4m usd. Annual profits 120,000$. Extending credit would increase sales by 20%. Margins remain unchanged. Required rate of return 15%.

What is the financial effect of proposal?

I got decrease by 18000

[alighere]

Isn’t this made in the two assumption that: the money is always supposed to be invested or if there is always supposed to be an overdraft. . .

[alighere]

Hi John. The way they’ve done it as is follows:

“Our approach is to calculate the profits forgone by offering the discount and the interest charges saved or incurred as a result of the changes in the cash flows of the company.

a. The volume of accounts receivable, if the company policy remains unchanged , would be:

3/12 x $12m = 3m$

b) If policy changed, the a/receivable would be:

(10/365 x50% x 12m$) + (2/12 x 50% x 12m$) = 1,164,384$

c) There will be a reduction in a/receivable of $1,835,616

d) The company can invest 20% a year so 0.2 x 1835616 = 367,123$

Finally, 367,123 – 120,000 = 247,123$

____________________________________

The problem i am facing is from part b) which says that the “ac receivable would be..etc…

The a.c receivable in b) should be 1,164,384 minus the discount allowed which is 120,000 = 1,044,384. (This is the true a/c receivable)

Then took it and multiplied 20%= 208,876$

Why i am wrong john?

[alighere]

You mean it can either be interest earned or interest payable. Like time value of money.

[alighere]

Thanks John! Ill watch them immediately. Im doing FFM so was unsure where to look

[alighere]

Hi Mike; by consultant i meant a friend.

If it was not bought, yes! That would be the correct thing to do. Loan the money; set up a contract;but the problem is I have already bought it! Plus it was bought through the chair co. bank account

[alighere]

The problem with renting it out is I don’t have a business license that allows the activity of leasing.

[alighere]

One consultant gave me the following advice:

I suggest that the asset is bought on behalf of Farm by Chair – it shouldn’t be a leasing agreement with income being generated through rental of the asset, rather the asset being bought by Farm, but paid by Chair.

I would expect to see the assets in Farm rather than Chair.
The ideal case would be to treat the value of the assets as a loan from Chair to Farm, entries would be as follows:

In Farm:
DR Asset
CR Chair loan account

In Chair:
DR Farm loan account
CR Cash/Supplier

Chair and Farm would then have a loan agreement detailing when the amount would be repaid to Chair, as well any interest charge.
You shouldn’t have the farming assets in Chair’s books, esp as they are not involved in this business.
Farm will then be able to claim allowances, etc as the assets are in their books.

However, the problem is: wouldn’t this override the business entity concept?

[alighere]

Thanks Mike. I got u.

[alighere]

Hey, I’m currently doing FFM. I don’t understand what you meant by if interest rates will rise in future, that means that share prices and bond prices will fall. Is it because the demand will fall and hence price decrease?

[alighere]

I don’t get this. How can u sell something u don’t own. What is the buyer buying then?

Am I missing something?

[alighere]

But John, for this to work we are placing an unrealistic assumption that the sales per day have to be the same. 100,000/365

Thats not possible.

[alighere]

Thanks Mike!

One last thing is the definition of tolerable error. It says that tolerable error is a monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurancce that the monetary amount set is not exceeded by the actual misstatement in the popn.

Could you plz explain this?

[alighere]

If a company makes purchase of only particular item locally and the supplier became defunct and the company started making importations mid year, could the same thing be applied in a substantive approach technique?

[alighere]

98% Thanks John

[alighere]

passed! 98% cbe. Thanks John

[alighere]

So it should actually be negative 160, right?

[alighere]

Thanks.

[alighere]

That’s the correct answer though.

[alighere]

But this 160$ refers to the cost of disposal.

It is not income. The answer says 160 usd is an avoidable cost.

[alighere]

I am getting b. Am I missing something here?

Kaplan kit, page 72

[Author]

Posts