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COLVIN CO (SEP/DEC 20)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › COLVIN CO (SEP/DEC 20)

  • This topic has 1 reply, 2 voices, and was last updated 1 month ago by John Moffat.
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  • June 9, 2022 at 5:41 am #658019
    Frooti
    • Topics: 61
    • Replies: 60
    • ☆☆

    The land and buildings will be disposed of at the end of the project and their tax
    exempt value is expected to increase at an annual rate of 30% throughout the four?year life
    of the investment.

    All components for the new bicycle will be produced or purchased in Canvia except for a
    gearing system component which will be manufactured by Colvin Co in the eurozone. The
    cost of acquiring this component from the eurozone is already included in the pre?tax
    contribution estimates, based on a transfer price of €10 per component. The finance
    director estimates a manufacturing cost of €2 per component.

    Please explain meaning of these lines and its impact in answer.

    June 9, 2022 at 8:23 am #658044
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49902
    • ☆☆☆☆☆

    As far as the cash flows in Canvia are concerned, the gearing system component is a cash outflow. However since the question says that the cost has already been included in the pre-tax contribution estimates, there is no extra flow to consider.

    As far as the cash flows to Colvin are concerned, Colvin will be receiving the remittances from Canvia and will also be getting the contribution from the gearing system components that they are selling to Canvia.

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