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Hi, in the Open Tuition Notes on the Lesse accounting question, the Indirect cost and the Incentive has not been considered in the Right to use asset and the Lease liability whereas in the Illustration it was considered, also in the notes, it was mentioned that the initial measurement will consider all the costs and incentives but the same hasn’t been done in that example. Can you please help me with that?
Hello Sir, If we have debt of 10% loan notes 20X9, the Book and Market values of it are $80m and $90m. What will be the book and market value/loan note?
Hello Sir, I have a question regarding the benefit of Tax on the cost of debt. When can a company not get the benefit of the tax on the Interest given to Debt Holders?
This question is from the BPP workbook: if a team of workers, costing $300,000 per year, is diverted to work on a new Project then they will stop work on existing products which earn contribution (ie sales revenue less variable cost) of $500,000, this contribution will therefore be lost (note that this assumes that labor is a variable cost).
Calculate the relevant cost associated with using the team of workers on the new project.In the Solution, they have considered both the opportunity cost and the labor cost, although the labor was already engaged on another work. Can you please tell me why have they considered labor as a relevant cost?
Hello Sir, can you please tell me when can Labour be considered as a Relevant cost and when not?
LCH manufactures product X which it sells for $5 per unit. Variable costs of production are currently $3 per unit. Sales of product X are estimated to be 75,000 units p.a.
A new machine is available which would cost $90,000 but which could be used to make product X for a variable cost of $2.50 per unit. Fixed costs, however, would increase by $7,500 per annum as a direct result of purchasing the machine.
The machine would have an expected life of 4 years and a disposal value of $10,000. LCH expects to earn at least 12% per annum from its investments. Calculate NPV.Sol. Savings are 75,000 x ($3 – $2.50) – $37,500 p.a. and after deducting Fixed cost of $7,500, the net operating flow is $30,000 for the year.
Sir, can you please tell me why are we only considering the Variable cost and not the Sale value as well to calculate NPV as it is a crucial part of the calculation.
Thanks in advance.
Hello Sir, I have a doubt regarding the Lease vs buy of Chapter 9. I am a bit confused with the tax savings of the machine for example 3.
As you explained, the machine will receive 4 years of capital allowance for operating + 1 year of allowance for scrapping. But if contrasted to the last chapter (Chapter 8 Example 4), the machine has 3 years of operating life but only 3 years of allowances are received. What differentiates the 2 problems?
