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In examiner report of Dec 22 Q2b – Discussion on assumption, the examiner said that :
“Candidates who generate assumptions not specifically given in the scenario are likely to earn more credit. For instance, in this question it has effectively been assumed that depreciation is equal to replacement asset investment. Candidates who then discussed this further by stating that this may be optimistic as depreciation is based on past costs, whereas replacement asset investment incurs current day costs, which are likely to be higher, would earn even more credit.”
But there is no information of depreciation mentioned in the question. I cannot find the assumption depreciation is equal to replacement asset investment anywhere.
Please help me to explain.
The examiner was wrong to have included this paragraph in his comment (I think he had probably copied it from his comment on an earlier exam).
There is mention of deprecation in the question and it has been added back as not being a cash flow. However more often in question it is not added back because it is assumed that an equal amount is spent on maintaining assets (as I explain in my lectures). However that is not the case in this question which is why that paragraph in his comments is not true.
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