- This topic has 11 replies, 5 voices, and was last updated 6 years ago by
.
- Posts
The question states that a no of products will need a spl packaging material which Chmura will send to Megha. The investment appraisal has considered the above as a cost to Megha, but not as an inflow to Chmura (after the cash flows from Megha have been converted to Chumra’s home currency). Shouldn’t I add it too, sir? Why has the inflow been ignored?
Chmura will have to buy the packaging and then sell it to Megha and charge them for it. So Chmura will have both the revenue and the cost – they cancel each other out.
So if the parent sells the subsidiary any component, is that how I am supposed to treat the transaction unless the parent adds on a markup? So that’s the reason only the contribution is considered as an inflow to the parent company, right sir?
And thanks 🙂You could have brought in the revenue, but you would also have had to bring in the cost.
(That is what I would have done, even though the net effect would be zero. I would have brought in both figures (the revenue and the cost) just in case I was misreading something – in which case I would hope I would have got it half right 🙂
It is always much easier to be wise afterwards – in the middle of an exam I would always be frightened that maybe I had misunderstood something. But at the same time, my real concern would be to make sure I could get the 50% and therefore pass 🙂 )
Alright sir, will follow your advice. 🙂
In many questions, the contribution per unit of the component transferred to the sub is given. So while I charge the sub for the entire cost of the component, I should only consider the contribution as an inflow to the parent, right? ( I know that the answer to this is apparent from your previous comment, but I want to be sure of what I am supposed to do in the exam 🙂 )
It depends. What made this question unusual is that they weren’t making the packaging themselves, they were simply buying it and then recharging it to the other company.
Sir can explain the meaning of this assumption?
It is assumed that the value of the land and buildings at the end of the project is a relevant cost, as it is equivalent to an opportunity benefit, even if the land and buildings are retained by Chmura Co.
It is because the question does not actually say that the land and buildings will be sold, and we only bring in cash flows.
However, even if they are retained by Chmura then is is effectively a cash flow because they will not have to pay out cash to buy new.
Sir I am not satisfied with the tax calculations, the capital allowance on straight line basis is calculated in Fubuki co deducted the machinery value at the end from the the cost and then apply the rate i.e (3M – 0.4)x 25%=0.65m and so tax saving0.65x 0.25=0.163m
In this question, chmura the value at the end of period is not deducted?
And second thing is that what is meant by this line is question?
A balancing adjustment will be required at end of 5 year when it is expected that the machinery will be sold for MP500.
Is this the amount at the which we are expected to receive if we dispose?The question specifically says that the capital allowances are 10% of cost.
There is always a balancing allowance or charge when a machine is sold. If it is to be sold for 500 then this is what the expected proceeds are, and these are as always subtracted from the tax written down value to calculate the balancing charge or allowance.
- The topic ‘Chmura co (Dec '13)’ is closed to new replies.