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Hi Sir,
for this question the tricky part is the part of ‘net cash inflows for 5 years in advance’ => since it is rvd in advance thus the cash flows should start in year 0 to year 4.
May I know how about the treatment if the net cash inflows are rvd in accrued?
0, 1, 2, etc are points in time that are 1 year apart.
Time 0 is ‘now’ and is the start of the first year.
Time 1 is 1 year from now and is the end of the first year / start of the second year
Time 2 is 2 years from now and is the end of the second year / start of the third year.
and so on.We always assume that operating cash flows occur at the ends of year (i.e. in arrears, not ‘accrued’) unless specifically told otherwise as in this question. If that had been the case here then the flows would have been from 1 to 5.
I explain all of this in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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