- This topic has 2 replies, 2 voices, and was last updated 2 months ago by alaccountancy.
- August 30, 2020 at 1:07 pm #582731alaccountancy
In Q2A of the OpenTuition WAT Case Study, one of the points made in the mark scheme, in relation to the goodwill featured on the cost-benefit analysis (of the business case for the new computer system) is:
‘Perhaps the drafter of the NPV calculation meant increase in net profit instead of increase
in goodwill, but that needs to be confirmed. It would still be a difficult figure to estimate
1. Could that too, have been another error of the drafter of the business case? In that, the cost benefits analysis should track and include all movements in revenues and costs and so would, when aggregated/netted, produce any uplift in net profit anyway and so to include a ‘net profit’ uplift would result in double-counting, essentially?
2. I was also wondering, if there was an inclusion for ‘net profit’ – then that could subsume adjustments for accounting provisions, like depreciation and impairments, which should not be included in the NPV analysis, because they’re not cash flows?
3. In this mark scheme, for this question, I noticed that the critical review of the business case followed the structure of the business case written and I thought that was a really helpful way to structure the business case. There were, however, references to the omitted elements of the business case, but not all of the missing elements. How do we determined which of the missing elements are worth mentioning – do we just choose on the basis of what we think would be likely to have the most material impact on the decision making process, following on from the submission of the business case?
Thank youAugust 30, 2020 at 2:52 pm #582750Ken GarrettKeymaster
1 Potentially. You would need to explain your point succinctly and clearly to the examiner.
2 As you say, only cash flows should be in the NPV and net profit is not usually the same as net cash inflows. The whole goodwill adjustments suffers from non-cash flow effects too.
3 Correct. You will ne time-constrained inthe exam and will have to use yiur judgement to determine which the most important points are. Exercising that judgement is really part of the exam. Make sure what you regard as the vital issues are covered in your answer.August 30, 2020 at 8:23 pm #582781alaccountancy
Understood – thank you so much.
- The topic ‘WAT Case Study’ is closed to new replies.