# Overdraft calculation (AAT L4 mock exam Q8)

Ehbaat4
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**2**
Hi, could anyone explain the 2 ways of calculating the overdraft interest in this question? I’ve looked at the answer and still can’t get my head around how they worked it out!

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## Comments

337The £50,000 is the loan amount and the arrangement fee is 5*50000*0.015 =£3,750.

Interest for each year can be done on either a start of year balance or an average for the year.

Year 1: Overdraft = 50000 (full) or 45000 (average) Interest 4250/3825

Year 2: Overdraft = 40000(full) or 35000(average) Interest 3400/2975

Year 3: Overdraft = 30000 (full) or 25000 (average) Interest 2550/2125

Year 4 Overdraft = 20000 or 15000 interest 1700/1275

Year 5 Overdraft = 10000 or 5000 interest 850/425

Total incurred Interest = 12750/10625

You then add the arrangement fee for the total interest paid hope this helps explain how this works.

ACCA in progress

F4- Passed Aug 2020

F5- Planned for Dec 2020

F6- Passed Sep 2020

F7

F8

F9

22Could you please help. When calculating cost of sales, when asked that 18% is gross operating profit. Does it minus in the gross profit amount before calculating cost of sales?

I really need to understand this one. Thank you

337Gross Profit = Sales - Cost of sales

Gross Profit Margin = (Sales - Cost of Sales)/Sales *100

I'm guessing you have a sales figure and a Gross Profit margin

CoS = Sales - 0.18 Sales would be your answer in that case.

ACCA in progress

F4- Passed Aug 2020

F5- Planned for Dec 2020

F6- Passed Sep 2020

F7

F8

F9

2*CONTENT REMOVED AS RELATES TO LIVE ASSESSMENT*

The following should be calculated:

Revenue = ( COS + Gross Profit)

COS = (Revenue - Gross Profit)

Inv = (COS x Inv days/365)

Trade receivable days

Trade payable days

I made a guessed on the days for Inv days = 34 days, trade receivable days 26 days = 60 days - trade payable days 19 = working capital cycle = 41 days, the days that I had provided will equate to 41 days.

I did it based on the video I watched in YouTube. It was stated that you need to sell your inventory quickly and less the payable days so that your cashflow will be much better.

I am stuck understanding this question because, I could not find a similar question in the workbook I used for my revision. Also, I bought a workbook from Osbourne but still waiting for the delivery. Is there anyway you can advise on how I can solve this one?. I would appreciate a lot if you can help me as I don't have any access to my previous tutor. Unless I will sign up again and re-do the whole tuition. The exam was my 3rd attempt. I am wondering if there is tutor that can help, like pay as you go arrangement, just asking...please help....

337I'm still not sure what you mean by gross operating profit of 18% are you meaning a margin and if so which margin Gross or operating. (I didn't do this module so some of the terms/equations used in this module I might not be familiar with.)

If it is a margin then

Margin = Profit (margin appropiate) / Revenue *100

Revenue = Profit / Margin (as a decimal)

Are you calculating inventory or inventory days?

If the former then you'd need to be given the days or enough information in the statements if you have the latter

Inventory days = (Average Inv/COS) *365

You seemed fine with the other two.

If you have access to the financial statements and decision and control modules they both have a ratios section which might have some relevant questions that would help with this type of question.

These questions as a whole are understanding what can be calculated from each ratio. There are multiple ways to get the revenue figure for example from different ratios. You have the basic profit equation then the 2 ratios GPM and OPM as well as asset turnover. Similarly for the operating profit you can use the OPM ratio or the ROCE etc. Often you'll need to use one ratio to get the needed figure for another ratio.

ACCA in progress

F4- Passed Aug 2020

F5- Planned for Dec 2020

F6- Passed Sep 2020

F7

F8

F9

557I have had to remove some of your comment in the above post as it relates to Live assessments. Please note you are not permitted to discuss or disclose any information from live assessment materials. Please discuss these offline with your tutor or stick to practice assessment materials within the community.

Thanks