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Payback period

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Payback period

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.
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  • November 25, 2015 at 1:20 pm #285178
    kasia
    Participant
    • Topics: 24
    • Replies: 17
    • ☆

    Dear John,

    Could you please tell me what is the treatment of depreciation in calculation of payback period?
    In your example in lecture notes there is no depreciation at all but now I have came across a question where depreciation was added to cash inflow value. Is it because in the question they specified that depreciation is charged on straight line basis? So do I ignore it if it’s not mentioned anywhere in the question?

    Regards

    November 25, 2015 at 4:38 pm #285237
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    The payback period is calculated on the cash flows, and depreciation is not a cash flow.

    Without seeing the example you are referring to, I can only imagine that you are given the profits each year, in which case you would add back the depreciation to get the net cash flow each year.

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