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Hi John,
I am referring to Cardale Industrial Metal Co. example from Dec 2015 paper, question 5.
For part C of the question, I see that the suggested answer calculates net assets as $10.04 million for Div N if the manager would not have made the investment.
They seem to have simply deducted 6.8m investment from non current assets and added net current assets to arrive at 10.04 figure.
However, if the manager would not have invested this amount then the cash/bank balance would have been higher by 6.8m leaving the net assets unchanged.
Is the examiner assuming that the new equipment is 100% financed as there is no other information provided?
What’s the best practice in exams for such questions?
Thanks,
NitinYou are quite correct and what the examiner has done in her answer is not 🙂
(It is effectively assuming that the division got the money for the investment from head office)However, the calculation itself was not required for the marks, and the basic idea behind the discussion was pretty standard.
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