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Hi Sir,
BPP Revision Kit Question 75 asked in which situation the net Working capital is most likely to increase and the answer is when Non-current assets are sold. I don’t understand why. WC is CA less CL. It is totally not related to Non-current asset at all. Could you please explain to me why?
Thank you so much!!!!When the assets are sold, the company will receive cash (or have a receivable) which is a current asset. So working capital will increase as a result.
Thank you so much. I have another question. Question 90 and 91 of BPP. I remember on your lecture you said that Depreciation is not Cashflow so it’s not relevant for calculating NPV or Payback period. I think I misunderstood you somewhere so the answers for Question 90 and 91 do take into account of Depreciation. Do you have the BPP Revision Kit newest version? Because these questions are from there. If you don’t have please let me know I’ll type the question down. I really don’t understand the answers please help me!
I only have the current version of the BPP Revision Kit!
Question 90 is asking for the ROCE. The ROCE uses the profits and as you will know from Paper FA (or whatever exempted you) and from my lectures, profits are after charging depreciation and the question gives the profits.
Question 91 is asking for the payback period and the payback period uses the cash flows. Depreciation is not a cash flow and since the profits given are after charging depreciation we need to add back the depreciation to the profit to find out what the net cash inflow is.
Thank you so much!!! Please also help me with Question 84 Revision Kit. There is a sentence I don’t understand is “Oscar Co would be required to accept an advance of 80% of credit sales when invoices are raised at an interest rate of 9% per year.”
I read the answer and also don’t understand why “Increase in finance cost = 2,301,370 * 0.8 *0.2”It means that the factor will pay them 80% of the sales immediately (rather than them having to wait 30 days). They would have to pay interest to the factor of 9% which means it is costing and extra 2% (0.02) over the interest that they are paying on their overdraft.
Could you please explain question 127. Why the answer is lease better than buy?
To calculate NPV of buying we discount the CF after take into account of tax saved on Capital Allowances.
To calculate NPV of leasing we discount the CF after take into account of tax saved on Lease payment.
I don’t understand the question 127, what is the accountant is calculating, especially the part “the lost of capital allowance”Thank you!!!
In future please start a new thread when you are asking about a different topic. The reason is that we cannot give private tuition and so our answers are for the benefit of everyone. Many people use the search box to find existing posts that answer their questions.
Instead of doing two separate calculations (one for leasing and one for buying) as we normally do, the accounting has the lease payments after tax as the cost of leasing, and has taken the buy flows (i.e. the initial cost and the capital allowances) and being a saving if we lease as compared with buying (in the case of the initial cost) and an extra cost of leasing compared with buying (in the case of the lost capital allowances).
So the NPV resulting is the difference between the PV of the leasing flows and the PV of the buy flows.Since it is positive it means that the net savings of leasing as compared with buying are greater than the cost of leasing, and therefore leasing is better.
(By ‘loss of capital allowance’ it really should say ‘loss of the tax saving on capital allowances’).
You are an amazing teacher!!! Thank you so much for always response very quickly !! And about where to post, I will do so in the future. When I used the search box, I don’t know if it’s just me that I can only search on the page I’m opening, I can not search this whole FM forums for a specific topic. So I have to open every pages in this forum to see if there is someone asks the same question like me. But there are too many posts that I couldn’t open up them all. Therefore, I thought I should not post on different posts so there won’t be too many posts and it can be easier for other students to keep track of. Anyway, I’ll do as you told me to do in the future.
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