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Washi Co. (Sept’18)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Washi Co. (Sept’18)

  • This topic has 3 replies, 2 voices, and was last updated 1 month ago by John Moffat.
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    Posts
  • August 19, 2023 at 9:54 am #690253
    yashponda
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    While arriving at the Components revenue (post inflation) we do not inflate the revenue in 1st year and do adjust the revenue for inflation subsequently from year 2 to year 4.

    However, the doubt is, why do we inflate the revenue of 2nd year by 1.015 and not by 1.015^2?

    Please clarify.

    August 19, 2023 at 3:58 pm #690264
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53169
    • ☆☆☆☆☆

    The question states the pre-inflation revenues and that they only increase in years 2 to 4. So the revenue in year 1 will not inflate and in year 2 will inflate by year 2’s inflation, and so on.

    August 20, 2023 at 10:13 am #690321
    yashponda
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    So as per your reply, Revenue in year 2 should inflate by year 2’s inflation rate i.e 1.015^2, however in the kaplan kit answer they have inflated year 2 revenue by year 1’s inflation (1.015).

    Hence the doubt. Please help.

    August 20, 2023 at 4:32 pm #690338
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53169
    • ☆☆☆☆☆

    No, that is not what I wrote.

    What is in the Kaplan Kit is a reprint of the examiners answer, which is correct.

    For component revenue there is no inflation in the first year. The flow at time 2 does inflate but only by the rate of inflation in the second year. The flow at time 3 does inflate but only by the inflation in the second and third years.

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