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hello..
question BURUNG 2014 JUNE.
why in this question they did not deducted TAD in operating cashflow,but they had added back TAD after tax or before cashflowThe answer has not added back TAD.
They have calculated the tax (in workings 1) by taking the profit less the capital allowances. They have then show the tax cash flow as an outflow in the cash flow statements for calculating the NPV,
The alternative, which would give exactly the same end result, would be to subtract the TAD in the cash flow statement, then calculate the tax, and then add back the TAD in the cash flow statement because it is not a cash flow. The end result would be exactly the same.
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But the alternative method is not giving same answer.
For example year 1.
Profit 24.87
Cost (14.37)
TAD. (1.6)
Profit 8.9
Tax 20%. (1.78)
TAD. 1.6
Workg cap (3.57)
CF. 5.15But revision kit CF. 6.43
Of course it gives the same answer!
The TAD is not 1.6.
The question asks you to correct the errors, and 1.6 is an error. See note (iii) of the question, and check the TAD’s in the answer!
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Thanks sir
Hello tutor
Could you help explaining why the working capital required in year 1 only 3.57 (resulted from 8.54-4.87) and year 2 only 3.82, and so on.
I dont know why it did not bring full 4.97- 8.54 -12.36 -7.38 into year 2:3:4 because this value trully 20% of year sales ?Thank you.
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