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In BridgeCo water Question ( June 2008 exam paper ) Can you explain how we got the values for trainer costs and also the other costs. Also , why haven’t we taken 50% of trainer costs in Q1 and Q2 because it is stated in the scenario that other 50% of trainer costs were delayed and paid one month later then the rest 50% of costs must have paid in Q1 and Q2. Right?
The question asks you to revise the profit forecast given in the question.
Delaying payment affects the cash flows, but does not affect the profit – expenses are charge in the period in which they are incurred. (This is basic financial accounts).Since there is extra revenue of 20% but the sales price is the same, it must mean there are 20% more students. They are keeping the same tutorial and room standards and so they will need to spend 20% more on trainers and on room hire.
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