[nokia]

Putting it simple Market value is calculated as the present value of all actual future cash flows from a debt/equity discounted using Kd/ Ke(Current market rate).

whether FS is included in the question or not u need to determine the future cashflows and then discount them.. remember for equity future cashflows are dividends and to determine the present value of all future dividends we normally use dividend valuation model(if future dividends are constant) or dividend growth model(if future dividends are growing at a constant rate).

[nokia]

hmm thanks 4 info mike little

[nokia]

its 7 years as per ias however individual country laws may vary as in pakistan its 5 years..

Engagment partner is the one who is handling the audit client.. Other key audit partners are the other partners of the firm not engaged in the subject client they may act as reviewer if the engagement risk is greater than normal.

[nokia]

Remember interest is classified as finance cost because it is paid to the lender in return for money he has given the lender is loosing his value of money and opportunity cost of fund being invested elsewhere.. for the borrower the expenses incurred for whatever purpose are already classified rightly to where ever it pertains.. interest cost is the cost of buying money and selling money in future it will be classified always in finance cost..

only one exception is provided in ias if the asset for which the amount is borrowed meets the definition of qualifying asset as per ias 23 then the interest would not be expensed out rather it would be capitallized 🙂 hope u got the logic behind interest cost 🙂

[nokia]

Yes! post you question plz

[nokia]

For associate will be removed from our books as we are taking the share of profit instead.. Otherwise would result in double counting.

For subsidiary will be removed from our books as we are already merging the PnL of the two entities.. Otherwise would result in double counting.

[nokia]

book swap transaction on OT

[nokia]

Can the blue ink be used in solving paper except the first page? YES! was allowed at my time
How many marks are awarded for good presentation & nice hand writing or does the poor presentation hit the scoring level in exam? 0 to 1
Is cuting/overwriting allowed (or marks are deducted for that)? allowed
Whats the way to manage time preasure (except hard practice)? long breaths

[nokia]

High low method is used to separate variable cost and fixed cost from semi-variable/semi-fixed cost(means the cost contains fixed as well as variable cost)

in this method we take the highest and lowest activity level to process our calculation (remember highest and lowest activity level not cost)

Assuming this is the highest and lowest activity level

Units/hours/Activity level : 10 , Cost 150
Units/hours/Activity level : 15, , Cost 200

This cost is semi-variable cost.. It contains fixed(which is same in both activity levels) as well as variable cost. The difference in cost i.e 50 represents variable cost only because fixed cost is same in both.. Total variable cost will be different at different activity levels…. this 50 is due to the difference in no. of units. the difference in no of units is 5.

Now we have difference in cost (which is totally variable) and difference in units we can now compute per unit variable cost
50 / 5 = 10 per unit.

Now we can calculate fixed cost using any of the two activities by first calculating the total variable cost and then subtracting it from the total cost….

[nokia]

I haven’t got the question but i guess u r trying to calculate the learning rate..? i guess u are confused on this simple formula

Time for the first unit x Rate^no of times the output has been doubled = cumulative average time taken for the total output.

Is this what u are asking for so that i may further explain its logic.. or there is some other issue?

[nokia]

in CAPM we use equity beta because investor wants return against total systematic risk (business as well as financial)…

For an ungeared co we use asset beta only because asset beta = equity beta becasue of zero financial risk

[nokia]

Systematic risk is the Risk of fluctuation in equity value based upon factors beyond the control of entity i.e. those factors that effect whole of the securities listed on SE.

Equity bets represents systematic business risk as well as systematic financial risk
Asset beta represents only systematic business risk.

Examples of systematic risk (though depends on the circumstances of the case and are subjective) are:
– risk of change in base interest rates
– risk of change in tax rates
– risk of war or political instability, etc

These are the factors which would effect the overall stock market.

[nokia]

thanks mike 🙂

[nokia]

btw there is a little mistake in your calculation of present value for 3 months B 15,450.51 look at this way:

using this method if i calculate present value for 12 months it would be [15840*(1+(.1/12))^-12] = 14338 !! although it should b 14400.. (it’s not a rounding off issue)

the accurate method to calculate present value of 3 months is this.
first calculate equivalent monthly rate in this way [(1 + annual rate) = (1 + equivalent monthly rate)^no of months in a year] it becomes (1 + 10%) = (1 + x ) ^ 12
x = 0.7974140% being the equivalent monthly rate

Now calculate present value for 3 months in this way:
15840 / 1.00797414^3 = 15,467.

🙂

Check this for 12 months
15840 / 1.00797414^12 = 14,400..!! 🙂 cheers 🙂

[nokia]

wow NGU m impressed by ur method.. a very good question indeed.. 🙂
Let me go into a little financial management to spot the difference:

In examiner’s solution the examiner has used the simple interest method to unwind the discount i.e same interest is being charged every month on straight line basis.. This is simple and quick approach used in financial reporting papers.

However in your calculation there is a built-in assumption that the interest is being compounded every month(i.e. besides principle interest is also being charged on the previous month’s interest as well at an equivalent monthly rate of annual 10% interest) the effect of which is that in the earlier months less interest is being unwinded while in the later months more interest is being unwinded because of the interest on interest effect.. Technically speaking your calculation is also correct and practically being used in many banks to calculate the amortization on different securities.

[nokia]

What I think of this is:

Normally we don’t take the initial investment’s value in payback’s calculation.. coz when we talk about normal payback approach one logical argument is that scrap value at the end of useful life can’t b assumed to spread evenly through out the year i.e its certain that it will be recovered at the end so to calculate the no of months in ur case it is wise to exclude the scrap proceed and take 200k only because it can b assumed to b spread evenly over the year 🙂 hope u got it

getting into further detail if u want to go into depth:
If the company is considering to bailout its investment even before the useful life then scrap value is also considered at the end of every year not just at the end of last year..! its called bailout payback period this approach is normaly suitable if the firm wants to avoid loss due to current financial position of the firm..

[nokia]

NPV considers Timevalue of money + Gives absolute answer + it uses cost of capital as a data input
Payback’s eyes are closed after the payback period i.e it doesn’t consider cashflows after the payback period it might b negative after that..! Should just b used as a screening tool.. it doesn’t consider Time Value of money however discounted payback does considers the same
ROCE doesn’t considers time value of money also doesn’t give absolute answer + uses cost of capital or target rate as a decision output rather than data input.
IRR has multiple IRR issues may give multiple IRRs if cashflows are changing their signs from -ve to +ve then +ve to -ve or vice versa 🙂

[nokia]

Remember interest is charged for time value.. Lets say u took 100 from a bank and return after 1 hour the same amount the bank won’t charge you interest..

Similarly when rent is paid in arrears then the principle which was outstanding at the year end was outstanding for the whole year and interest was paid for that period..

now when interest is paid then at year end there is no liability on you to pay interest the only liability you have right now at year end is the principle i.e if you repay the whole amount immediately you have to just pay principle not the future interest because it has not yet accrued..1 🙂 hope i interpreted your question correctly..

Now a $ 1 million sentence
the interest portion of your future rentals in case the rent is paid at accounting year end (i.e in arrears) is your contingent liability only coz there is no present obligation however there is past event and probable outflow of cash and thats y its just disclosed in the notes to the financial statements

[nokia]

🙂 Ok thanks alot. i have calculated that finally

[nokia]

Ok… But isn’t there any way to calculate that negative IRR? How does excel calculates that?

[nokia]

why not f9? i think u r not eligible to sit in Ps unless u r siting in ur remaining F series papers as well!! plz confirm…! my openion is that u shud sit in f7,f9 and p1

[nokia]

bonus shares are assumed to be isued from the beginning of the earliest period presented

[nokia]

(100000/0.5 + 200000) x 10 / 12
+
(100000/0.5 + 200000 + 50000) x 2 / 12
=
WAOS

[nokia]

Hi mike…
I believe u r talking about ‘the translation of functional currency into another presentation currency’ this way…!

good to see alternative method for this..

can u please explain a bit more this alternative as I’m confused that the exchange gain would also go in share capital and pre-acquistion reserve??

[nokia]

M reasonably sure that revaluation reserve would be translated @ the rate of the date when it was created in subsidiary’s boOks..!

[Author]

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