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Hathaway Co would need to submit an application to the relevant regulatory authority. It is expected regulatory approval would be granted in one year’s time. Manufacturing and sales would commence immediately after being granted regulatory approval.
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An investment in plant and machinery of $12m will be required as soon as regulatory approval has been granted”As such, I am understanding that investment of $12m will incur at Year 1 and sales also start at Year 1 because the question says “Manufacturing and sales would commence”.
I know in usual, the investment in PPE will be Year 1 and sales start from Year 2 onward and in practice, it almost the same. However, the question here indicates it is in the same year but the Answer is Year 1 for investment and Year 2 is sales starting. The words make me confuse, can anybody explain it for me
Although the examiner always heads up the cash flow tables with ‘year 1’, ‘year 2’, etc., they are not 12 month periods but are points in time that are 12 months apart.
Given that approval is given in 1 years time, this is at time 1. Manufacturing and sales start at time 1, but we always assume (unless specifically told differently) that operating flows occurs at the end of years. Therefore the first operating flows occur at the end of the first year which is time 2 (i.e. 12 months later than at time 1).
This is always the same and was the same in Paper FM also.
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