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D21 Q1

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › D21 Q1

  • This topic has 6 replies, 2 voices, and was last updated 8 months ago by John Moffat.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • June 8, 2022 at 2:55 pm #657937
    humai
    Participant
    • Topics: 741
    • Replies: 238
    • ☆☆☆☆

    Sir in this Qs it was written that initial Wc of 10 will be required at start of year 1, subsequently WC of 15% of sales for that year will be required at start of year 2 to 4

    Sales were as follows

    June 8, 2022 at 3:01 pm #657939
    humai
    Participant
    • Topics: 741
    • Replies: 238
    • ☆☆☆☆

    Yr 1 = 10
    Yr 2 = 40
    Yr 3 = 48
    Yr 4 = 57.6

    Now in WC working can I show like this

    0 1 2 3 4
    WC (cumulative) 10 6 7.2 8.64
    WC required 10 -4 1.2 1.44
    WC recovery -8.64

    And then in my main NPV appraisal format can I show like this

    0 1 2 3 4
    WC required -10 4 -1.2 -1.44
    WC recovery 8.64

    Would this be fine or any marks will be deducted for this?

    June 8, 2022 at 3:03 pm #657940
    humai
    Participant
    • Topics: 741
    • Replies: 238
    • ☆☆☆☆

    Please note in above 10 is at year 0, WC recovery is at year 4

    June 8, 2022 at 3:06 pm #657943
    humai
    Participant
    • Topics: 741
    • Replies: 238
    • ☆☆☆☆

    And instead of WC required I think WC investment will be a more better word to use?

    June 8, 2022 at 3:44 pm #657951
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51585
    • ☆☆☆☆☆

    What you have written is fine and there would be no marks deducted. (The examiners answer is exactly the same except that he has rounded off the figures).

    As far as the description is concerned – both investment in WC and WC required mean the same thing 🙂

    June 9, 2022 at 12:14 pm #658097
    humai
    Participant
    • Topics: 741
    • Replies: 238
    • ☆☆☆☆

    But 1 thing more sir I have shown WC recovery in working as negative fig and in main Npv schedule I have shown as positive fig. So is this correct?
    Like wise WC investment I have shown in working as positive fig and in main Npv schedule I have shown as negative fig. So is this also correct?

    June 9, 2022 at 4:06 pm #658137
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51585
    • ☆☆☆☆☆

    It depends what formula you use in the spreadsheet to get the total cash flow.

    The working capital recovery is added to the cash flows.

    If you have set up a formula in the earlier years where the working capital is being subtracted and you replicate the same formula, then at time 4 you need to show the working capital as a negative amount because subtracting a negative figure is the same as adding it.

    If you are not replicating a formula from previous years then you can show it as a positive figure and the add it in the total.

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