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Hello!
Regarding this question,how did the examiner arrive at the figures for tax allowable depreciation, net interest payable, plant & machinery, reserves and short term loans &overdraft?
I have worked this way for year 1:
Tax allowable depreciation = 15% * (1012-152) = 129net interest payable = (580 * 7%) = 41
reserves (copy and paste from the question) = 864
short term loans & overdrafts = again copy and paste from the question = 230
Can you please guide me on year 1 figures, after which I can try to do it on my own.
Thank you.
The P&M grows in line with sales, and so for 2005 is 1,012 x 1.09 = 1,103
Depreciation is 15% x 1,103 = 165Interest payable is (8% x 580) + (7% x 230) = 63 (long term borrowing at at a fixed 8%; only short term loans are at 7%)
Reserves: 864 (balance from 2004) + 106 (retained in 2005) = 970
Short-term loans: Note (vi) of the question says that the change in needs is achieved by adjusting the overdraft, so the short-term loan is the missing figure to make sure that the SOFP balances.
Sir,
I have two doubts regarding this question:
1.Depreciation.
In the question they mentioned that the changes in net P&M is as per sales revenue so in the first year calculation I understood but going forward to calculate the net figure why we are not deducting the depreciation provided? (eg as per my calculation 20X5 Opening balance of net P&M is 1103 and depreciation is 165 so year end net P&M is 938 and we need to inflate this as per sales ie 8% so the next year the opening balance will be 1013) Please do help me to understand where I went wrong2.FCFE – Change in working capital-
Regarding change I working capital they included the cash and short term deposit but actually we need to deduct cash when we calculate the net movement in working capital net working capital, Please clarify me .Thanking you in advance!!
1. You are reading too much into the question.
Note (v) says that the NBV will increase in line with sales, and this simply refers to the fact that the current figure will increase by 9%, then by 8%, etc..2,Cash is part of working capital, and if they need to increase the balance of cash held then there will be less cash available for distribution.
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