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Hi sir,
In the question, they said that the EV Club would be sold at a premium of 25% on the value calculated by FCFF method.
Then later in the question they mentioned the value of NCA of EV Clubs.
What the examiner did was subtract the Value of NCA from the Sale Proceeds to calculate the profit.
Why exactly was this done? They haven’t mentioned anywhwere that the profit calculation would be based on Asset Valuation Method. Shouldnt the profit on sale just be the Premium on Sale?
Many Thanks.The 25% is used to calculate the sale price (and you are I think happy with that part).
However in financial accounting, the recorded profit when anything is sold (whether it is the same of just one asset or of all the assets) is always the difference between the sale proceeds and the NBV (the balance sheet value) of the asset(s) sold. This is the standard financial accounting treatment as examined in Papers FA, FR and SBR, and this question is asking for one of the financial accounting statements.
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