Evertalk question June 2003

To be honest I have no idea how the examiner arrived at 46. This question was asked over 20 years ago and the examiner had changed three times since then and so it is not possible to ask him.

Obviously one needed to make assumptions. I myself would have assumed that the current 60 is based on the total fixed assets of 295 (i.e. 20%). Given that they are selling surplus assets for 40 then I would then apply 20% to (295 - 40) which gives 49 (not 46). This would only be very approximate anyway because it would be ignoring the fact that the land would not be depreciated (but we don't know how much of the value relates to the land) and also it would assume that the disposal proceeds of 40m were equal to the book value (which is unlikely to be the case). In circumstances such as this you have no choice but to make assumptions but when that is necessary do not waste time trying to make complicated assumptions, and do state briefly your assumptions. Then you would still get the marks (and I am certain that my assumptions would have got me full marks (assuming obviously that I had done the rest of my answer correctly!)) Also, the difference between my figure and that in the printed answer would not have affected my comments regarding the situation.