kodiak company december 09. — OpenTuition Forums

Jjigsaw199210y ago

hi sir we are told in the question that the company will increase investment in non current asset by 20%. from my understanding this is 1.20 * whatever the non current asset was which in this scenario is 1266 thus the nca for next year is (which i stand to be corrected) 1519. and after that the next year 1519*1.20= 1822.8 this you will guess is different from the model answer which got 1345 and 1440 for years 2 and 3 respectively. they seem to increase it by 6 to 7% please help

John MoffatTutor10y ago#1

Sorry, but I am away from home at the moment and so I do not have access to the question Kodiak. If you can ask again on Monday then I will be home and I will then be able to explain.

Former user10y ago#2

I have the same question, please advice how it was arrived to the numbers on the answer . Thank you!

John MoffatTutor10y ago#3

The question does not say that non-current assets will grow by 20%!! It says that it will increase its investment in new non-current assets by 20% each year. The investment in new NCA's (i.e. additions) in the most recent year were 66 (from the Statement of financial position) and therefore the additions next year will be 20% higher - 1.2 x 66 = 79 (and similarly in the later years).

MMałgorzata10y ago#4

Sir, why do we subtract this investment in new NCA?(additions) We treat it as a cash outflow, right? I don't understand the part of the question saying that the company depreciation policy matches the currently available tax write off for capital allowance. Can you please explain how we should deal with that, I would appreciate your reply

John MoffatTutor10y ago#5

Usually we subtract depreciation/capital allowances in order to calculate the tax, and then add back the depreciation because they are not a cash flow. However if investment in new assets is equal to the depreciation then this is a cash outflow, so there is no point in adding back the depreciation and then subtracting the same amount.

BBilal9y ago#6

hello sir, how is the opening working capital figures 240, 262 and 286 are arrived at in the same question ?

John MoffatTutor9y ago#7

Note (2) of the question says that working capital increases in line with the growth in gross profit, which is 9% per annum. The working capital (excluding cash) is currently 220, and so next year will be 220 x 1.09 = 240. (and the following year will increase by another 9%)/

BBilal9y ago#8

Thank john. I get that

John MoffatTutor9y ago#9

You are welcome :-)

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