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Hi Sir,
I was working through the question one, december exam 2010 and during it a faced some situations as follow:
1) it is stated in the last paragraph of the directors’ point of view that working capital will be ignored, until here everything is okay. But the correction stated that if we had to recover it, it would be $298. Now I’m getting confuse. If we compare that question with question 1 of june 2011, we can see that in year 4 we do recover $820 and I do agree with that value. Why here if we had to recover we would recovered $ 298 and not $285 (250+11+12+12) ignoring the calculation of it in year 4 (13)?
2) can you explain Why we do calculate the working capital in year 4 (13) in this case? Is due of we will not recovering it?
3) Balancing allowance
I do undestand that the Balancing allowance is only claimed when allowed by the taxation, in this case in year 5. But the directors’ point of view on investiment appraisal, at the last paragraph, they whant to claim it in the fourth year of the operation.
As you have done with the working capital at the end of the year 4, you did not recovered it in your correction paper, Why you do not claimed the Balancing allowance at the year 4, as the directors whant it to be?Sorry one more time for my english
Regards
ET(Sorry for not noticing this question sooner. However, in future, if you want a question answered by me then ask it in the F9 Ask ACCA Tutor Forum.)
1) If we were recovering working capital at time 4, then the amount would be $285. All the examiner means in his answer is that in total it would be $298 more than what is appearing at the moment.
2) We are not recovering it. Usually we are looking a projects with a limited life and we recover the working capital at the end of the life. Here, the project is not going to stop after 4 years (we have expanded the company and presumably it will continue for much longer than 4 years). We appraised over 4 years because the question told us to.
3) Balancing allowance is being claimed in year 4, however the question says that tax is one year in arrears and so the tax saving from the allowance will not appear until time 5.
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