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Unit 31 - reporting figures over time, HELP!!

katsutlieffkatsutlieff Trusted RegularRegistered Posts: 459
I am revising for my simulation for unit 31, I have come across a question in the revision companion that isn't included in the course companion, surprise surprise.

Can someone please explain the following to me, my brain hurts too much to try and get my head around it!!!

Given are the annual income for a business covering 2002/06
2002 153,640
2003 167,040
2004 185,600
2005 201,000
2006 215,000
and the RPI to cover the same period
2002 139.2
2003 141.9
2004 146.0
2005 150.7
2006 155.1
The question asks to 'convert the figures to real terms based on 2006 and include the real annual year on year growth turnover in the analysis'.

The course companion does not cover this so I am a bit stumped, looking at the answers I can work my way back so I have worked out the formula just need some background information or it won't stick.

Can anyone help :confused1:

Many thanks

Comments

  • GreycowGreycow Feels At Home Registered Posts: 83
    Hi I am just covering this in another unit. As i read it they are asking you to restate the income of the business in terms of using the RPI of 2006. The formula is:-

    Sales in current year x RPI for 2006/RPI for current year

    for example 2002 restated at 2006 prices is

    153,640 x 215,000/153,640 = 153,640 x 1.39 = 213,560

    2002 income is now shown in 2006 prices.

    Hope this is helpful
  • katsutlieffkatsutlieff Trusted Regular Registered Posts: 459
    Thanks for the reply Greycow, I wish that was what they were asking for because that's all I have been taught.

    The answer for 2002 is as follows

    RPI is converted to another figure (any idea what it is?) by dividing the RPI for 2006 with the RPI for 2002,
    155.1/139.2=1.114.

    Then you take the sales figure for 2002 £153,640 and times it by the new RPI figure to get the 'real term figure'
    153,640 x 1.114= £171,155

    Then you do the same for 2003

    Then you use the new real term figures to
    (2003-2002)
    2002 x100= real annual growth,(6.7%)

    I am so lost with this, it hasn't been covering in my textbook. This I suppose is the problem with being a distance learner, somethings are covered in the classroom but not the books.

    Thank you for taking the time to post me an answer. Does any of the above make any sense to you? :scared:
  • vishavisha Well-Known Registered Posts: 218
    A 100g bottle of coffee sold in Jan 1971 was 67p when the RPI index was at 19.4.
    In Jan 2008 the same 100g bottle of coffee was sold for 264p when the RPI index was at 209.8.

    Is coffee today cheaper or expensive then in 1971?

    On the face of it looks that we are paying 4 time more then in 1971. (264/67)*100=394%

    However, we should convert 1971 prices to today’s price to make the comparison realistic.

    To do that divide 67p by 1971 index of 19.4 and multiply by 2008 index of 209.8.
    (67/19.4)*209.8=724p

    The bottle of coffee should be sold for 724p at 1971 prices. However, we are getting a discount of 64% at today’s prices. The coffee is cheaper today.


    OR we can convert today’s prices to 1971 prices to make the comparison at 1971 prices.
    To do that divide 264p by 2008 index of 209.8 and multiply by 1971 index of 19.4.
    (264/209.8)*19.4=15.5p

    At today’s price the coffee should have been sold for 15.5p in 1971. some 77% CHEAPER then 1971 prices.

    The coffee is definitely cheaper today.

    Principle:

    DIVIDE price BY it’s OWN INDEX and MULTIPLY by CONVERSION year INDEX.
  • katsutlieffkatsutlieff Trusted Regular Registered Posts: 459
    Thank Visha, using your example I have been able to work out what the question in the revision companion is asking.

    You have shown me a much simpler way of adjusting sales figures. Thank you

    Divide price by its own index and multiply by conversion year index

    The question in the book I am having problems with seems to use a different formula for adjusting sales figures. As below

    To convert to 2008 prices

    divide 2008 index by 1971 index 209.8/19.4= 10.814

    multiply 1971 price by this figure to get real term price 67x10.814= 724p

    Nowhere in the course companion has adjusting sales figures been taught in this way which is why I panicked. I had to work out the formula by working back though the answers. Now it seems the answers are incorrect, which is why the taught formula and your formula does not work, which is where the confusion and panic has arose.

    I will stick with the way you have shown me as it is much simplier then anything taught

    The only thing I ask is would you be kind enough to explain the figure that is calculated when you divide 2008 RPI with 1971 RPI, what is this figure? What does it represent?

    I hope this all makes sense to you.

    Katherine
  • vishavisha Well-Known Registered Posts: 218
    Both the Book and I are doing the same thing. ( from a maths point of view)

    The book is woking out how much has the index grown by from the required point in time to today's date.

    the 2002 index was 139.2 and it has grown to 155.1 at today's date (2006)

    there fore 155.1 divide by 139.2 times 100 = 111.422 %

    therefore year 2002 =100% and to convert the 153 640 to today's price you must multiply it by 111.422% giving a figure of 171 189 (the book way concerntrataing on the increase of index). (your figure is 171,155 - a difference of 34 due to decimal values- an insignificat value)

    I have used a simple logic. If 153 640 = 139.2 then 155.1 must equal 153640 divide by 139.2 (to find value of 1) and multiply by 155.1

    hence 153 640 / 139.2 * 155.1 = 171 189

    same thing but one looking the index point of view, while I am doing the same thing but from the price point of view

    I hope this helps.
  • katsutlieffkatsutlieff Trusted Regular Registered Posts: 459
    Thank you Visha for all your help

    I have emailed my learning provider and clarified the question and equation used. They have told me to use the equation that you kindly showed me, confirmed the equation that has taught within the course book is very confusing. Why teach it then?

    Anyway, thanks again, had been going around in circles with this one which is why I ended up so confused, and stupid :tongue_smilie:

    Katherine
  • SandyHoodSandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    The calculation:
    Divide price by its own index and multiply by conversion year index

    Could be restated as:
    .........................conversion year index
    ..............................its own index

    This would give a value, probably a 1.something or a 0.something
    and is called the INDEX FACTOR
    Sandy
    [email protected]
    www.sandyhood.com
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