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Refer to the note 15 for candidate one answer, it seems to be contradictive with the answers provided in the suggested solution.
In the suggested solution, it is stated that the convertible loan notes would be treated as debt, increasing Tippletine Co’s gearing, which may concern the other shareholders. As this is given in the suggested solution, this points should worth 1 mark.
Candidate one answer’s is Tippletine Co’s shareholders will be concerned about the gearing of the company if further loan notes are issued. Conclusion of bond into equity enhances the gearing. I think this candidate answer’s has the same meaning with the above solution given by the examiner but how come no mark was awarded?
Could you please throw some light into this?
It is from the article written by the examiner, Shishir Malde.
Please find the link below.https://www.accaglobal.com/content/dam/acca/global/pdf/SA_aug10_examinerapP4.pdf
Hi Mr. Moffat,
I don’t understand the examiner’s answer on computation of the asset beta for Jupiter = 1.5 x (1 – 0.0756) = 1.387
I don’t understand the rationale behind the formula of Wd = 1 – T / Wd (-1) – T = 7.56%
where is the gearing ratio of 16.66% comes from?
Alternatively, I calculate the beta asset as follows:
Jupiter = 1.5 x 290 / (290 + (39.6 x 0.6)) = 1.386
Mercury = 0.9 x 5 / (5 + (2.14 x 0.6)) = 0.72Current market values : Mercury
Ve : 10m shares x $0.50 = $5m
Vd : 30%/70% x $5m = $2.14mDoes my alternative calculation of beta asset for both Jupiter and Mercury correct?
Thank you in advance for your reply.
Best regards,
KevinWhen calculating Discount Factor for Base Case NPV, I don’t understand why the suggested solution using 50% equity and 50% debt to degear Beta asset for the purpose of Keu calculation. I thought the expected company gearing ratio would be more appropriate. Could you please explain?
For part (a), I don’t understand why PV of net cash inflows are $970,000 x 7.191 x 1.11^-3.
I thought should be $970,000 x (7.839 – 2.444).
7.839 (DF@11% for Year 19)
2.444 (DF@11% for Year 3)Hi Mr. John,
I can’t figure out how to get the debt/equity ratio using book value after the redemption of loan notes which is 21%. Could you please help? Thank you.
Q 105 Boo and Goose
Boo acquired 80% of Goose’s equity shares for $300,000 on 1 January 20X8. At the date of acquisition Goose had retained earnings of $190,000. On 31 December 20X8 Boo despatched goods which cost $80,000 to Goose, at an invoiced cost of $100,000. Goose received the goods on 2 January 20X9 and recorded the transaction then. The two companies’ draft financial statements as at 31 December 20X8 are shown below.
Required
Prepare a draft consolidated statement of profit or loss and other comprehensive income and statement of financial position. It is the group policy to value the NCI at acquisition at fair value. The fair value of the NCI in Goose at the date of acquisition was $60,000.Q 106 Witch
Witch acquired 70% of the 200,000 equity shares of Wizard, its only subsidiary, on 1 April 20X8 when the retained earnings of Wizard were $450,000. The carrying amounts of Wizard’s net assets at the date of acquisition were equal to their fair values apart from a building which had a carrying amount of $600,000 and a fair value of $850,000. The remaining useful life of the building at the acquisition date was 40 years.
Witch measures NCI at fair value, based on share price. The market value of Wizard shares at the date of acquisition was $1.75.
At 31 March 20X9 the retained earnings of Wizard were $750,000. At what amount should the NCI appear in the CSFP of Witch at 31 March 20X9?Yes, I understand that the question states Parent measures NCI at fair value based on market value of subsidiary shares at the date of acquisition, but why is it no need to incorporate the fair value adjustment of Building at the date of acquisition while the post depreciation adjustment of Building is incorporated?
Please find below for the question.
The following cost information relates to product XY which is produced in a continuous process from several different materials.
Actual quantity of materials at standard price $ 19,960.
Actual quantity of materials at actual price $ 23,120.
Actual yield at standard materials cost $ 20,800.
Standard yield from actual input of materials at standard cost $ 19,552.What is the materials yield variance for the period?
Answer given by BPP:
Mix variance (19,552 – 20,800) : $1,248 (F)
