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Osborne Books - Level 4 synoptic workbook, page 29, task 4

candybr2017candybr2017 Registered, AAT Student Posts: 2
Hello, can anyone please explain the calcluation for task 4 in Level 4 synoptic workbook, page 29?
i don't understand why the cash flow amount has to minus 60K. The answer shows in the book for the cash flow in Y1 is (275k+50k-60k)=265K



I have attached the quesiton.

Thanks
Haili
KasiaK

Comments

  • Pian32Pian32 MAAT Posts: 378
    It's beacuse the £60,000 is overall irrelevant to the decision and is therefore not included in the considered cash flow.

    If the plant is open:
    £275,000 is made including £50,000 in management cost

    If the plant is closed
    The management cost still occurs and £60,000 is gained at another site.

    Therefore cash flow
    =£275,000 (made from being open) + £50,000 (cost occurs either way) - £60,000 (Income that would occur even if closed)
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Planned June 2021
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    F9 - Planned June 2021
    KasiaKOniyama100
  • KasiaKKasiaK Registered Posts: 2
    Hello, could anyone explain whether the 10% decrease is calculated from 265K or from 325k?
    Photo of the answer highly appreciated. Thank you
  • BrNorton007BrNorton007 Registered Posts: 10
    Thank you so much for sharing. It's very helpful for me.
  • Oniyama100Oniyama100 Registered Posts: 1
    > @KasiaK said:
    > Hello, could anyone explain whether the 10% decrease is calculated from 265K or from 325k?
    > Photo of the answer highly appreciated. Thank you

    Hi Kasiak, I have been struggling with this question and previous comments have been helpful.

    The 10% is on the 265,000. It wouldn't be on the 325,000 because this amount is before the deduction for non-relevant costs of 60,000.

    The way I handled it is by carrying over only 90% of each year's revenue to next year. E.g.

    Y2 total = 265,000*90%=238,500
    Y3 total = 238,500*90%=214,650
    Etc...

    This is also what the answer suggests.

    I hope this is somehow helpful.
  • KasiaKKasiaK Registered Posts: 2
    Oniyama100,

    Perfect! Very helpful indeed! Many thanks for your prompt response.
    Kasia
    Oniyama100
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