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Could the tutor or someone familiar with P4 paper kindly help me with the topic please.
I am attempting the 2012 pilot paper question 3 Doric co on the topic reorganization of companies. I am very confused the cash flow part of the question:
1) when we estimating the new entity value,why we have only considered the parts division, we did not consider any factors related to fridge division( i.e. earnings, costs)
2) when calculating the cash flow, I dont understand why depreciation is deducted but why not added back as non cash item expenses?
3) “Annual depreciation on non-current assets is 10% and this is the amount of investment needed to maintain the current level of activity. What does the later half of the sentence suggest? My understanding is the annual depreciation equals to the working capital amount. But it seems wrong.
4) how about capital expenditure, why they are not considered in the cash flow?
Thanks very much for your help!
Here is the link of the past paper:
Kind regards
June1) The reason for only considering the parts division is that the only other option to closing completely is option (2) which is closing fridges and just keeping the parts division.
2), 3) and 4) all go together 🙂
What the sentence that you have quoted in (3) means is that there will be investment in new assets etc, each year and it will be equal to the amount of the depreciation. So….although you would normally add back deprecation because the depreciation itself is not a cash flow, you would then have to subtract it because we investing the same amount. The although maintaining the current level of activity may include an element of extra working capital, it is really referring to additional capital expenditure to maintain the level of activity.I hope all that makes sense. If not then do ask again 🙂
Hi John,
Thanks for answering my question, I understand it now.
Could you please give me some advice for last minute revision? I have read my BPP text book and went through OT Notes and also the video lectures. I also went through most of the BPP revision kit. (either practice or read the answers) I now have done 3 mocks under time conditions but all did pretty badly and I feel very frustrated. When I was reading the question, I thought I have seen this question before and then I realize there are parts I am very confused about. (probably means I did not fully understand the past questions I went through) With only one week left, I am extremely worried that I will fail… … What advice would you give me at this stage?
Thanks again!
June
Obviously try and sort out the parts that you are very confused about.
However, the main thing in the exam is to prove that you understand the ideas – do not worry too much if you are getting the calculations wrong. It is not the accuracy of your numbers that matters so much as proving that you are trying to do the write thing.
Many more marks attach to writing then might seem the case.
Even if you cannot sort out the numbers, then write down the approach that you want to take – you will get marks for that (assuming your basic approach is correct) even without the numbers.
Always write down your assumptions – in P4 so much depends on your assumptions and with different assumptions you can end up with completely different answers. It does not matter – if your assumption is sensible then you will still get the marks.Too many people just concentrate on the numbers, hand in lots of workings with no explanation, and end up failing as a result.
Also, remember that there are professional marks for the compulsory question – usually it will require a report and if so then these are easy marks to get.
Remember that you only need 50% to pass. Write something for all the written parts – however little you write it will almost always get some marks.
Obviously do as much as you can with the calculations, but the minute you start getting stuck then give up and get down to the writing 🙂
Finally, look again through the last 3 years real past exam questions and get used to the style, and what the examiner is writing in his answer. These were written by the new examiner. The previous examiner was much more confusing so don’t let his exams put you off. Also, the mock exam questions are not always representative of the current style.
Thanks for your valuable advice, John. My main problems is I was trying to get the numbers right and takes too much time and then end up not having enough time for written part and section B.
I will take the written part more seriously and the study the past 3 years paper again. Hopefully I will make some progress in the last a few days.
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