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John Moffat.
John Moffat.-
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adarsh1997
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Hello John,
I have 2 issues:
1. In example 2, I’ve not yet understood why at the end of year 4, how do we get back the $20,000 working capital?
2. In example 3, I’ve not understood the logic of calculating the working capital. How come for example, in year 1, only $600 of WC is needed and not $1100?
Thanks in advance.
John Moffat
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I assume that you are referring to the examples in Chapter 9.
For example 2, working capital is needed to finance, for example, higher inventories during the life of the project. At the end of the project, this extra working capital is no longer needed (for example, they will use up the inventory in the final year which means they will purchase less and so effectively get the working capital back).
For example 3, they do need 1,100 at the start of the second year (so at time 1). However they already have 500 that was invested at time 0. So they need an extra 600.
It seems that you must be using the lecture notes without watching the lectures (because I explain both points in the lectures), which is pointless because it is in the lectures that I explain and expand on the notes. If you are not watching the lectures then you need to buy a Study Text from one of the ACCA approved publishers and study from there – the lecture notes on their own are certainly not enough.
(And however you choose to study, it obviously is essential that you have a Revision Kit and practice every question – practice at past exam and other exam standard questions is vital to passing the exam.)
aadil1234
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Hello john I wanna ask you that in today’s AFM paper in NPV question there was a statement that Yuwa Co earns considerable amount of profit from other activities to take advantage of tax relief? What does this statement means? Does it mean that the company doesnot want it’s tax relief to be carried forward on the project’s next year profit because it takes advantage of tax relief from other activities? And will we carry forward tax losses on next year’s profits in the project?
John Moffat
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This is the normal assumption that we make anyway (as in Paper FM – was F9) if the new project is in the same country,
It simply means that if there is a ‘loss’ from the project, then there is no tax loss – it reduces the overall taxable profit of the company and therefore results in a tax saving.
(As opposed to an investment in another country where a loss is a tax loss and is carried forward to reduce future taxable profits).
It is not the companies choice – it is application of the tax rules.
adarsh1997
John Moffat
aadil1234
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