Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › P4 DEC 08
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John Moffat.
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- April 20, 2015 at 9:44 am #241890
Dear sir
I have question on DEC 08 in Q1. in the answer about the terminal value amount. I do not know how to get the number? my calculation process is (6.2-1.2)^5, is that right?
thank ahead!April 20, 2015 at 11:42 am #241897The construction cost was 6.2M. Property prices are inflating by 8% in real terms and so since general inflation is 2.5% it means that the actual inflation in money terms is (1.08 x 1.025) – 1 = 0.107 (or 10.7%).
So the value after 5 years will be 6.2M x (1.107^5) = 10,306,941The charge for repairs and renewals is 1.2M at current prices. There is general inflation at 2.5%, and so the actual money cost is 1.2M x (1.025^6) = 1,391,632
So the net cash inflow is 10,306,941 – 1,391,632 = 8,915,309
April 20, 2015 at 11:56 am #241899Sorry I still do not know why 1.2M is not consider the 8%growth rate? Only consider inflation rate. Thanks
April 20, 2015 at 1:36 pm #241915Because the 1.2M is at current prices and the general rate of inflation is 2.5% – there is no mention of any other reason why it should grow (as there is in relation to property prices).
April 20, 2015 at 1:38 pm #241917I see. thanks sir!
April 20, 2015 at 1:56 pm #241926You are welcome 🙂
April 21, 2015 at 7:35 am #242021Sir I have another question in JUNE 09. In question 1, I do not understand the answer why they calculate the unclaimed capital allowance? I know the question states that the unclaimed CA does not included. But in calculating the unclaimed CA the answer also deducted the proceeds. However, this proceeds has already included in the post tax cash flows. Could you please explain the reason behind it!
Thanks ahead.April 21, 2015 at 10:38 am #242043In future, please start a new thread when it is a new question.
The unclaimed capital allowance (i.e. the balancing allowance) is always calculated as the difference between the tax written down value and the sale proceeds. This is purely a tax calculation.
I don’t know whether or not you sat F6 (UK) and whether you took (or were exempted from) F9, but the free Paper F9 lecture on investment appraisal with tax will help you.
April 21, 2015 at 10:45 am #242050I will start a new thread in the future.
Just as from you answers. So if the question give us a proceeds or residual value, we should calculate the tax benefits right?
ThanksApril 21, 2015 at 10:47 am #242054Yes – unless obviously the question says differently, then there will always be a balancing allowance or a balancing charge.
April 21, 2015 at 10:58 am #242061Sorry sir. I just want to make clear about this question
In JUNE 08 question5. Should we calculate the balancing allowance? But the answer just add the residual value(40), do not calculate this one? What difference between this two question?
Thanks.April 21, 2015 at 12:54 pm #242067In this question there is a balancing charge (2.67).
The examiner has shown it in a confusing way (it was the previous examiner) but it is there.
April 21, 2015 at 1:49 pm #242084You make a clear explanation. I understand finally. Thanks. Sir.
The last one is for the balancing allowance we should consider it all the time unless examiner tells not do that. Also it should be put in the year after the end of project year! Am I right?April 21, 2015 at 2:39 pm #242089Yes to both questions (but read carefully in case the question says to do different 🙂 )
April 21, 2015 at 2:42 pm #242090In what situations we do not need to consider the balancing charges? Could you please give a example?
Thanks!April 22, 2015 at 7:00 am #242146There is always going to be a balancing allowance or balancing charge, unless the question says to ignore it.
April 22, 2015 at 10:18 am #242163I got it. thanks for your clear explainations.
April 22, 2015 at 12:15 pm #242175You are welcome 🙂
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