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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Kindly help with this question
A company has arranged a ten year lease at an annual rental of 8000. The first rental payment has to be made immediately & others are to be paid at the start of each succeeding year. What is the Present value of lease at a discount rate of 12% per annum?
A- 50640
B- 51562
C- 45200
D- 49852
I’ve got the following answer
PV of first payment $8000
Pv of other nine payments 8000*5.328= 42624
8000+42624=50624. In the book its A.
Company has budgeted for the following month
$000
Profit after tax 100
Increase in receivables 35
Increase in inventory 20
Increase in trade payables 20
depreciation 70
taxation 40
What is the budgeted increase in cash balances for the month?
I’ve got the following answer
100000+70000+20000-35000-20000=135000
In book it is 175000,I don’t understand why the tax of 40000 will be added, when it is a cash outflow??
First question: Your answer is correct. You would still choose A because it is the nearest (it would seem that whatever book you are using has rounded it for some reason).
It is because the profit before tax is 140, and the tax will not yet have been paid.
Thanks alot 🙂
Which of the following are arguments in favour of absorption costing?
1) Closing inventory is valued in accordance with accounting standards.
2) No under/over absorption of overheads.
3) When sales fluctuate but production is constant, absorption costing smoothes out profit fluctuations.
I know that 1 is right & 2 is wrong, but in book its 1 & 3. I can’t understand what is meant by the third one?
It’s because fixed overheads are absorbed into the cost and so only the amount relating to the production is charged each month. Marginal costing charges the full fixed overheads each month whether we produce a lot or a little – so profits fluctuate more.
You are welcome 🙂