[duybachhpvn]

Passed with 82%, being affiliate now

I can’t say thanks enough to John, who has answered every single question I had on the OT forum during the 2 months study. Without you, i dont know how I can self study and pass this paper.

Congratz to all passers and good luck to others in future attempts. I used Open Tuition forum, together with BPP kit in this attempt.

[duybachhpvn]

To be honest the question 2 about ratios should not come as a surprise, given your past paper Sep/Dec 2017 had a 21 marks section on the same thing 🙁

10 marks on ratios calculations are quite generous I would say

[duybachhpvn]

Came into exam and did question 2 3 right away, timed myself well for these 2… But question 1 was unexpectedly lengthy and I felt lucky that I did part a b d first on time. Did not have time to write the whole report for part c but finger cross I can get a pass =.=

Thanks John for all the support with my questions in the forums. Could not sit this exam without your help.

[duybachhpvn]

Hi John,

Thanks for your answer, Sorry for mixing up Year and Time. Then I will just change my first question to Time. In overall, what I dont understand is why the examiner is calculating the TAD effect on the earnings as at Time 0 ( 28 Feb 2017)? That does not make sense to me because new purchased asset that are being used to calculate TAD are bought at Time 0, then such TAD effect should be counted for Time 1 cash flows, not Time 0. I did watch the lecture and I think I got the point fine, that if asset is bought at time 0 then the TAD effect should start for Time 1 cash flows.

What I did for this part, lets say to calculate FCFF for the new Chrysos company, is to calculate Time 0 EBITDA = 13,440 – 7560 = 5880, then grew it at 4% to 6115 for Time 1. Only after that I will calculate the TAD of 1,382 and deduct it from 6115 to get the taxable profit for Time 1. I will then calculate Terminal Value as at Time 1 (growing at 4%, discounted at WACC) and then discount the sum of the Time 1 Cash flow and the Terminal Value to Time 0…. What did I do wrong here? The examiner answer basically only calculate at Time 0.

2. Again on the increased value, how about the original 20% that the VCOs own? That original 20% holding now also have a value of 9,229 and may be higher than the value before the restructuring happen. Why do we ignore that increased value for the original 20% holding?

Thank you

[duybachhpvn]

Hi John,

Thank you for quick response. Please let me clarify further as below
1. Capital allowance is provided in full for the year regardless of whether the asset is bought at begin or end of year. Is that correct?
2. The question also mentioned that allowances are in arrears. Should this mean that the allowances should be deferred to the next period?

Thank you

[duybachhpvn]

Thank you

[duybachhpvn]

Hi John,

Thanks for the feedback. Just to check follow, so the Ke is not considered as return on investment? So far for all the questions I faced with the growth rate formula, the Ke has been used as the rate on investment in the formula

Is there a need to state that we assume Ke to be return on investment if we use the formula in such way?

Thank you

[duybachhpvn]

I see, yes it was from BPP. Thank you… I will check out examiner answer

[duybachhpvn]

Hi John,

Thanks for the feedback again. I got what you meant now on the lower value due to cash paid.

Just one more note to close this post. As the cash paid will reduce the total value $2,201.94, If I take the new equity value $2,201.94 minus the cash paid, lets say $144 in the case of 30% premium, then I will get $2201 – $144 = $2057. Take this net equity value divided by 310m shares, I get $6.64/share of combined company. Then the increased in share price for existing Makonis holders will be $6.64 – $5.8 = $0.84/share.

The answer may not be the same as the examiner’s answer, but is this an acceptable approach to do in the exam? This way was somehow more understandable to me than the approach of the examiner…., as it calculates the new share price and compare ti previous share price

Thank you for your help.

[duybachhpvn]

Hi John,

Thanks for your feedback. The part that I dont understand is your 3rd paragraph there. I understand that $359.44m goes to Makonis existing shareholders, but I dont understand how can you take that value divided by 210m to get the increase in share price. Given the share price before the deal for Makonis was $5.8, I don’t think the existing shareholder of Makonis can sell their share to market, after the deal is done, at $5.8 + $1.71 = $7.51 like that.

My understanding here is that right after the premium is paid to buy Nuvola, the combined company will have 310m shares in total and the market will determine each of the share now value at new equity value of $2,201.94m /310m = $7.1/share. This mean that each of the existing 210m shareholders of Makonis now have their shares holding valued at $7.1/share, which is the price that they can sell their share to market. Therefore, the increase in their share price compared to before the deal is $7.1 – $5.8 = $1.3/share.

I hope that I make my point clear enough and hope you can help let me know what is the problem with my understanding here.

Thank you

[duybachhpvn]

Hi John,

Thank you. For this case I can understand to some extend that the Pa – Pe is actually representing NPV, because this is the option to delay

However, how about other cases where we have option to sell project, or option to invest further,… In such case, we have additional cash flow in the future that give us the real option value, but the original project NPV is still available. Do we add the real option value to the current original NPV to get total value or not? Below is the technical article link where I see that for Option to delay, the real option value was not added to NPV but for all other cases, the option value was added.
https://www.accaglobal.com/sg/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/investment-appraisal.html

Thank you

[duybachhpvn]

Hi John,

Thanks for quick response. I understand now. However it seems that you deleted the valuation of bond video for your chapter 8 which cover this area. Can you help upload it again?

Thanks

[duybachhpvn]

@aleksandrasavcenko said:
In Q3 did somebody take in to account the fact that blue was closed for 3 months due to flood when calculating ROI?

I think for that one, it will be fairer to adjust capital employed for the 3 months that the factory was closed due to uncontrollable factor. I only argued that if the CE was to be adjusted, the Blue manager may have met the target ROI…

[duybachhpvn]

Also btw I dont think that RI is applicable to Blue division, because it is a profit centre so that it should not have an appropriate Capital Employed to calculate for RI… I’m not sure if the Capital Employed figure that the question provided for Blue division included capital assets inside or not because if yes, then that figure is not appropriate to use…

[duybachhpvn]

I could not find the tax rate to calculate WACC for Q2…. so I assumed tax rate to be 0% and WACC = 12%….

[duybachhpvn]

@kpmgkpmg said:
How did you dispose associate?
And anyone knows what was there with bonds?

I calculated investment in associate to data of acquisition, then difference between FV 40% and that amount is the gain/loss to RE

For the bonds I recognized it at FV 38, a loss to OCE of 42-38 = 4, then the cash amount received I treated as liability as there was repurchase agreement with repurchase price > sale price…

[duybachhpvn]

@sallyf18 said:
On Q1 for the secondary subsidary it something about their FV based on market shared of £5 parent and £1.60 sub for the NCI and the 40% acq. We’re we supposed to use this instead of consideration to work out goodwill?

I think yes? Cash consideration is 500 + FV of 40% equity at 1.6 * 700 * 40% = 948, then NCI at 1.6 * 700 * 15% = 168, so GW = 948 + 168 – 1062 = 54. Not sure if right or wrong ==’

Then I saw the investment on SoFP at 928 so I thought there was some revaluation there and I adjusted retained earning as Dr Investment 20 and Cr RE 20….

[duybachhpvn]

The cost of the investment for second sub on SoFP is different from cash + FV of 40% equity held, there must have been some loss recognised on the carrying amount of investment but I also dont know if it was recorded in RE or OCE…

The adjustment for Finance lease was tricky as well, not sure if I did it right but I reversed the alternation cost and recognised a provision on the cost at end life, then depreciate the 2 amounts added to Finance lease asset and also recognised 6% interest expense on the provision…

Was not able to answer the factoring one ==’, and then the ethics one based on that… that was one hell paper ==’

[duybachhpvn]

Thanks Chris, I got it

Just want to take this chance to say thank you for all your support to all my questions in the last 3 months, they helped me a lot with my self study that I doubt I can answer myself. The new lecture on SoCF is brilliant. Hope that I can perform my best tomorrow.

Thanks again for your support.

[duybachhpvn]

Thanks you. Only now I read the word trustee… A follow up question is if the amount of 7m is not given any tax relief, shouldn’t we remove the 7m from the total Contribution paid in of 19m in the question, thus giving a carrying amount of net obligation at year end of 60 + 7 = 67 and calculate deferred tax on that balance?

Dont know why the question give this information and in the answer there was no number relating to this 7m

Thanks

[duybachhpvn]

Hi,

I thought that the BPP is applying the latest IFRS versions so that the 20% applied to the contingent consideration should be correct? I dont know where to check this so not sure as well… but the latest BPP revision kit applied 20% so should we apply it as well?

Thanks

[duybachhpvn]

Hi,

Thanks for the reply. Regarding the broker fee, this is not considered as transaction cost in business acquisition?

I’m viewing investment in equity instrument as the same as business acquisition (just acquiring more equity instrument), is it incorrect?

Thanks.

[duybachhpvn]

Did you use the answer on acca’s website itself? Then it does not reflect the new treatment. Go see that question in BPP or Kaplan revision kit.

[duybachhpvn]

Hi,

Thanks. Then I saw a very similar case in example in BPP book page 562 (textbook) with below case:
“The club capitalises the unconditional amounts (transfer fees) paid to acquire players.
The club proposes to amortise the cost of the transfer fees over ten years instead of the current practice which is to amortise the cost over the duration of the player’s contract. The club has sold most of its valuable players during the current financial year but still has two valuable players under contract.

If Seejoy win the national football league, then a further $5 million will be payable to the two players’ former clubs. Seejoy are currently performing very poorly in the league.”

I see that the further 5 million is exactly the same nature as the case in my question but then BPP treated it as contingent liability instead of exe contract. Did I understand anything wrong here?

Regards,

[duybachhpvn]

Hi,

Thank you, totally understand that Exe contract is not under scope of IAS 37. However I was not asking to treat executory contract under IAS 37. I was asking why this bonus is not considered as a contingent liability, as it meets the definition of the contingent liability that will happen due to occurence/non-occurence of future event, and disclose the expected amount. Means I dont treat it as exe contract.

Thanks.

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