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What i understood after watching your lecture is that equity accounting is used to record the profit earned by the investment in another company in SOPL.
For example, a parent company bought associate with a prospect of earning more income from that investment which is considered the other income for the parent company recognized in SOPL?
Lastly, please explain are there any other accounting methods used in ACCA other than equity accounting (if yes please mention few)?
Thank you for your efforts ?
Thanks for your answers but You did not comment on this question.
Is it also true that Unrealized profit is recorded in statement of other comprehensive income while the realized profit is recorded as revenue in SOPL?
Secondly, what i understood from your lecture on fair value adjustments is that it is an actual change in the market value of assets and liabilities and we have to reflect these changes in our financial statements.
For example the non current assets are revalued and have $50000 more than its book value which means that it is unrealized gain (until the asset is actually sold and we received cash in return), and also, we need to increase our assets by $50000 in SOFP?
Can you please explain me the topics for which we can use Present value and FUTURE VALUE respectively.
1. As u said that Present value can be used for both borrowing and investment purposes but is it also correct that future value is used only for investment, not fir borrowing purpose because this method can’t be used for borrowing?
2. Is it also true that Present value is widely used for investment appraisal projects only whereas present value is used less commonly for borrowing cases like in Buy and Lease questions. Is that correct to say? (Please define?)
3. How many topics do we come across in paper FM where we can split the present value to be between borrowing and investment cases separately?
4. What causes the interest rate to fall each year. For eg 10% interest rate is 0.10 but if we look at the discount factor table then after on year the interest rate has fallen to 0.909 (9.09%) then 0.826 (8.26%) and so on but what factors actually caused it to decrease every year?
5. What is the concept of “cost for money” where interest becomes necessary to be employed?
Thanks for your time ?
I have a little question about transfer price capacity limitations – example 8.
Product X has a contribution of $4 per hour and Product Y has a contribution of $3 per hour. We need to supply product Y to division B so we will make product Y instead of product X but we would lose the contribution of $4.
BUT how do you calculate the opportunity cost – I cannot understand. I check your lecture but didn’t really understand the logic. Could you please help me with this?
ALL the questions on transfer pricing in section C (long questions) are always without capacity limitations.
I couldn’t find a single question with capacity limitations in section C in the revision kit. It always appears in an MCQ only. This is the reason I asked you.
Thank you although 🙂
The maximum transfer price is the most that the buying division is prepared to pay for the goods to the selling division (div A) and externally as well which is actually the internal costs of division B.
Is it correct now?
Thank you for your help 🙂
Thanks for the answer.
The mix and yield variances definitions that I asked you above would be used for material and sales?
We use the material mix and yield variance definition interchangeably for sales mix and quantity?
Material mix and Sales mix:
In material mix we are seeing how much material kilos are used in the production as a mixture of using different products whereas in sales mix we are seeing how much more of the profitable sales units are sold as a mixture of selling different products.Material yield and Sales quantity:
In material yield we are seeing how much material kilos are used to produce output whereas in sales quantity we are seeing how much output is produced as compared to budgeted production.Do we apply the same approach to the building block model that you mentioned above for the balanced scorecard?
Please explain how do we approach the building block model? I need your help on this!
Sorry to ask again but I was confused…
200 units of product W is to be produced while all the fours products (W, X, Y, Z) takes 5 hours a day.
Therefore, every unit of W takes 0.025 hours per unit and so on.
Product————————W————X————Y—————Z
Throughput cost————230———-95———110————140
Machine hour / unit——-0.025——-0.01——0.0125——–0.01429
Throughput per hour—–9200——-9500——–8800———–9800
Ranking————————3————-2————4—————1We should make Product Y in fourth ranking
Is this correct because this is what you did in your lecture???
Thanks for your time 🙂
Sir, we always prioritize our ranking based on throughput cost per machine hour but here we are calculating it on total figures of throughput per machine hour.
Is it because every product is making a different number of units that changes the total throughput costs figures?
Thank You 🙂 Could you also say whether is it correct or not please?
Planning and Operational variances are calculated for Sales, Material and Labour only which will be tested in paper PM.
Planning variances:
Material Price:
(Standard Price in Actual Production)
(Revised Standard Price in Actual Production)Material Usage:
(Standard Production in Standard Price)
(Revised Standard Production in Standard Price)Operational variances:
Material Price:
(Standard Price in Actual Production)
(Revised Standard Price in Actual Production)Material Usage:
(Revised Standard Production in Standard Price)
(Actual Production in Standard Price)Sir, I wonder where these types of standards are used in F5?
1) Basic standard
These are the basic standard that company set and they could be easily achieve2) Ideal standard
These are the ideal standards that the company set and it is impossible to reach those standard3) Current standard
These are the current standard that we are considering4) Expected standard
This is what we expect the standard to be in the future but it might be wrong because they are based on estimatesPlease correct me if I am wrong
I have now watched your lecture. Thanks for that
Could you please also state the costs that are involved in raising equity shares such as transaction cost, issue cost, etc?
Sorry to ask again (I know it is 2 marks question that is going to be asked in the exam about this but I wanted to know the logic of these points that I raise! Hope you don’t mind)
1) Which debts are Secured with Fixed & those which are Floating Charge? Is it true that any debt can be of any type either Secured to Unsecured?
2) And What debts are Unsecured?
3) Is Bank Loan & Payables are Unsecured?
4) How do we know whether the debt is Secured or Unsecured such as Convertible debt is considered Secured or Unsecured (or it depends it could be any of them!)\
Thanks for your time! 🙂
I get your answer. Thanks 🙂
Sir, I have watched your lecture on this but I can’t really get that how the price reacts to new information available about the company & how the shares price trading in the stock market changes.
1) Weak form is where the price reacts to new information about the company but when the new information is adjusted in the price (I don’t know)
2) Semi-Strong form is where the price is quickly adjusted as new information reaches stock market (but when the price will be adjusted like in a day or two – I don’t know)
3) Strong form is where the price has already adjusted to every information available about the company in the price of its shares so there is not a chance of any change in the share price.
Please correct me if I am wrong!
Sir, I appreciate your previous answer & I’ve watched all your lecture but could you please help me with these too?
1) Can you please tell me which money market instruments are Interest-bearing instruments & which are discount instruments?
2) You said that derivatives get their value from something (but what is that something)?
Is that correct that under Currency Futures & Interest rate Futures they derive their value from Foreign exchange rate in Currency Future & Interest rate in Interest rate Futures?
The more the exchange rate or interest rate fluctuates the more derivatives value change!
Thanks for your time 🙂
Sir, you did not comment on this:
Is it correct that Short-term Finance can only be raised by Overdraft (from Bank) & delaying Payables (to suppliers)?
While Long-term Finance can only be raised by Equity (Shares & Retained Earnings) & Non-current Liabilities (Loan & Bonds)
Again, Is it possible in the exam that we will be given that the company having both increase short-term borrowing with the increase in long-term borrowing?
As u said that a company can use long-term borrowing for both Fixed Assets & Current Assets and vice versa for short-term borrowing then how would be able to identify whether the company is using aggressive policy or conservative policy based on that? [can we be asked in exam that company is using aggressive policy or conservative policy by using calculation or we just have to define them in theory only without any calculation?]
I saw your lecture on this and this is what I understood. Please correct me if I am wrong.
Clientele effect:
This theory suggests that a company should be careful when deciding whether to pay the dividend or not or reduce it to a low dividend payout which might upset a few shareholders those who have invested their money in the company. Shareholders have different preferential some people who are retired from the jobs may be invested in the company in expecting huge dividend payouts but many shareholders do prefer no dividend instead they prefer to invest their money in a company for a longer period so that they will get a return from the increase in capital gains.If the company has decided not to pay dividend, for some shareholders this might be good news because since the company has retained money to invest in the expansion of the business which will result in an increase in the shareholder’s wealth in the future.
Therefore, different shareholders or investors have different preference & the company should be careful in deciding the dividend policy because it may attract a group of shareholders to whom the policy is suited but it may upset another group of shareholders those who might have no other means of income except the dividend received from the company.
Signaling Effect:
If a company has a long history of paying dividends to the shareholder but for some reason, they have decided to change their dividend policy for maybe a good reason because they want to buy a new machine which will grow the business expanding (increasing sales).If a company changes its dividend policy by not paying dividends this year (let’s say) for business expansion but shareholders will be upset with the decision and it might result in losing key shareholders which could be harmful to the company’s reputation such as share prices drop sharply.
Therefore, a change in dividend policy should have a negative signaling effect on the shareholders in case a company has decided not to pay dividends or for some other reason.
I could not find dividend relevance theory in the notes. Could you please elaborate that?
What you are saying is that under weak or semi-strong forms, the investors can earn gains (not abnormal gains which I get the term from BPP kit as u asked) because they have more information than other investors about the company’s progress for the future such as its share prices will increase in future because company has invested money in the positive NPV project – hope I am correct here!
Please also comment on these doubts of mine because I am confused here a little!
1) Can anyone beat the market based on the information available to them – Is that correct by beating the market means that they can earn huge profits out of the available information?
2) In weak-form market nobody can make gains based on past price movements BUT what
information do they need to make a gain – public information?3) Same with the semi-strong market nobody can make gains based on public information available BUT what information do they need to make a gain here – private information?
4) Under Strong form market Share prices react before company announcement such as [If a company announces that it decided yesterday to invest in a new project with a huge positive NPV. But the Share prices doubled yesterday] – here the market is more efficient with the information available to investors on the very same day the share prices are adjusted!
Hope I didn’t bother you too much on this 🙂 But Thanks for your help 🙂
Point 1 was a typing error. Let me correct it.
[Point 1]
Is it true that we can identify the company’s policy whether the company is using long-term or short-term borrowings by looking at the increase & decrease of either the long-term or short-term Borrowing [Because the company can adopt any one of them], Either invest long-term borrowing in long-term assets which can be indicated by the increase in both long-term borrowing & long-term assets to earn profits for long-term prospects.Or If the company is investing short-term borrowing in Working Capital [to maintain liquidity problems within the company] which can be indicated by the increase in both short-term borrowing & working capital. [true?]
I don’t understand your statement about point 3. Let me rephrase.
[Point 3]
If a company has raised finance from short-term borrowing which will increase Short-term Borrowing [Current Liabilities] of the company AND therefore, it invests it in working capital for liquidity issues. Isn’t Working Capital be increased because we have already invested in it along with the short-term borrowing?
