SBR Mar/June 2019 Q2(C) Hudson

This topic has 3 replies, 3 voices, and was last updated 4 years ago by Stephen Widberg.

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August 17, 2020 at 5:08 pm #580936
joannekch
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This is the part of the extract answer from the examiner.

#The deferred tax asset is based upon forecasts for too long a period and is also based on unrealistic assumptions. Earnings before interest, tax, depreciation and amortisation will be overstated as a direct consequence. Net assets will also be overstated, helping Hudson to meet its debt covenant obligations.#

I don’t really understand, the Earnings before interest, tax, depreciation and amortisation & Net assets will be overstated? Could you explain in details?

Thanks.
August 18, 2020 at 5:34 pm #581087
Stephen Widberg
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If the deferred tax asset is incorrect then assets will be overstated at the tax charge will be understated.

So I agree with the point about net assets being overstated I would’ve said that profit after tax would be overstated as opposed to EBITDA
September 1, 2021 at 5:50 am #633735
carmenl26
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sir, I still cant get it why EBITDA and net asset will be overstated? EBITDA overstated because of the tax decrease or profit increase? Could you pls explain in details.

Thank you
September 1, 2021 at 7:16 am #633740
Stephen Widberg
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Please refer to my earlier post re EBITDA – where I said that I agree with you

If the DT asset is too high then NA will be overstated
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