[hemraj123]

What I was saying that in 2 that the part c of the question, the company has an option to take the loan at pretax of 7.5% and deposit the excess at 5%.

In share for share option will have cash with the firm and would be assumed to be to be invested which would earn 5% annually.

But in the answer, they have ignored the investment.

Also, in the cash option and mix option of share plus cash, they have included the effect of loan interest and also have included the opportunity cost of the 5% interest which could have been gained on the amount of cash held

My question was, why isn’t the the 5% receipt shown in the calculation of Eps when we can show it as opportunity cost in the other 2 options?

Opportunity cost doesn’t seem to be relevant here. Why do we include this?

Thanks

And, why do we include the opportunity cost

[hemraj123]

1) So if the P/E was to change post acquisition, then we would use the combined company valuation technique?

2) Then in the answer, for option b and c, they include the interest cost plus the opportunity cost as well. Why is that?

[hemraj123]

Got it. Thanks so much!

[hemraj123]

But if in this case, if I was to (in exam) make an assumption that since the projects are divisible, all cash flows would be equally proportionate to the amount invested, then would it be fine to calculate IRR on part of the project?

[hemraj123]

Yes. Thank you so much 🙂

[hemraj123]

So, this means that if the projects are in perpetuity, or the project can be invested in again indefinitely immediately after the project ended (With same cash flows), then we should use IRR for comparison?

[hemraj123]

Thank you sir and ram456

[hemraj123]

Sir,In example 5 of chapter 7, when Riley acquired additional 10% of Hulme, the total NCI was 30/40 of the original NCI (Which is clear as the NCI have reduced).

When Riley disposed 20% of Jones, we take 20% of Net assets and goodwill and add it to NCI (Which is also logical).

My question is that

1)If NCI is being valued using fair value basis, then why for disposal of the 20% do we not use the same formula as the one for acquisition? (30/10)

2) Shouldn’t we use the 20% disposal method calculation when NCI are valued at proportionate of net assets method?

Thanks

[hemraj123]

!

[hemraj123]

Thank you sir

[hemraj123]

So, if the life of the asset was changed in june and the year end was december.

Then, will we charge the half year’s old depreciation and half year’s new depreciation for arriving at the total depreciation charge?

Thanks

[hemraj123]

Yes sir, but the accounting estimate for useful life and the percentage change for the depreciation will be determined and reviewed every financial year end. And the estimate will affect the current and future periods (since its applied prospectively) (Year 2014 and onwards).

So wont we decide the depreciation at year end?

[hemraj123]

Yes, but the question says, ” The fire destroyed some plant and equipment with a carrying value of $1.2 million and there was no option but to scrap it.”

So I would assume that out of the total plant with the carrying value of $5,200, $1,200 has been completely written off and thus the remaining plant will be $4,000.

According to the notes, impairment will be allocated to:-

1) Specific assets,
2) Goodwill, and finally
3) Remaining assets (pro-rata basis)

So, in that case, won’t the remaining plant be impaired according to pro-rata bases?

Thanks

[hemraj123]

Thank you sir 🙂

[hemraj123]

Thank you sir 🙂

[hemraj123]

Thanks sir.

Does qualified and modified have the same meaning?

[hemraj123]

So, if the opinion is modified, in that case EoM and going concern paragraphs will not be included in the report?

[hemraj123]

Thank you Sir 🙂

[hemraj123]

Sir, as I have learnt in F7, the change in accounting estimate affects the current and future years, therefore, the asset would be depreciated for 2 years to 31 Dec 2013 and then from 1 Jan 2014, the carrying value ( 25- (2.5*2)) 20 will be divided over 5 years. Thus, the asset value as at 31 Dec 2015 will be (20-(20/5*2) 12 and the depreciation charge would be 4.

Is my calculation correct? Am I missing something here?

Thanks

[hemraj123]

Sir, it is a part of a question in P2 Electron (which was given for practice purposes),

Electron has recently constructed an ecologically efficient power station. A condition of being granted the operating licence by the government is that the power station be dismantled at the end of its life which is estimated to be 20 years. The power station cost $100 million and began production on 1 July 2005. Depreciation is charged on the power station using the straight line method. Electron has estimated at 30 June 2006, it will cost $15 million (net present value) to restore the site to its original condition using a discount rate of five per cent. Ninety-five per cent of these costs relate to the removal of the power station and five per cent relates to the damage caused through generating energy.

———————————————————————————————————————-

I did go through the answer and was able to understand most of the things.

But, I noticed that there was a provision for the damage caused but the calculation was (0.7/20=0.1 million). I didn’t understand this calculation. Does this include the the discount being unwound for damages? (They have not shown any unwinding of the discount for the damage costs of 0.7 million)

Thanks

[hemraj123]

I will ask my professor to give me the details of the question as he had asked this in a revision class.

I will let you know tomorrow.

Thank you sir

[hemraj123]

Understood sir, Thanks a lot 🙂

[hemraj123]

Yes,After I posted the question, I realised that I could check ACCA’s answer. Now I realise that this was a silly question.

One more question, Investment income is 5000 in parents accounts,so it is always the dividends in the individual accounts which are received from the associate (Are there no profits from the associate included)?

[hemraj123]

Yes. Thanks a lot sir 🙂

[hemraj123]

Sir, in this question, the profit for the year of subsidiary is 96.

Do we need to adjust for the intra group loan interest in the profit of the subsidiary?

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