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Timing Options
AFM
answered on 10-Jan-25 11:42
27. Illustration - Timing option Suppose MIS Ltd. is considering installation of solar electricity generating plant for light the staff quarters. The plant shall cost ₹ 2.50 crore and shall lead to saving in electricity expenses at the current tariff by ₹ 21 lakh per year forever. However, with change in Government in state, the rate of electricity is subject to change. Accordingly, the saving in electricity can be of ₹ 12 lakh or ₹ 35 lakh per year and forever. Assuming WACC of MIS Ltd. is 10% and risk-free rate of rate of return is 8%. Decide whether MIS Ltd. should accept the project or wait and see. In this Qn, Npv at year 0 = -0.4 Crores present value of option is arrived at 18.48 lakhs. "Option has +ve Value hence the company should wait and decide". Sir why are we waiting? Is it because timing option is American call? or any other reason?
latest answer
Thankyou sir
Durai Murugan
CA Final
★ 470
3
432
Beyond Normal Credit Terms
Financial Reporting
answered on 15-Jan-25 13:15
Sir we need to consider the PV of deferred payments only if its beyond normal credit terms right ?, say the sellernormally provides 3 months credit, so in this case we don't need to discount it right ? And say if normal credit terms is 3 months, and for us they gave specially for 12 months, so now I need to discount for beyond 3 months which is for 9 Months (12-3) or for whole 12 months ?
latest answer
Generally discounting is done with reference to date of transaction. Even if normally its a 3 month credit and we get 2 years credit we discount 2 years value and not 1 year and 9 months.
Hemachandra D
CA Final
★ 9K+
1
198
We have gotten into a future contract to sell the rice at 59 per kg but why are we repurchasing it again and selling it again?
AFM
answered on 10-Jan-25 10:22
We have gotten into a future contract to sell the rice at 59 per kg but why are we repurchasing it again and selling it again? We already had physical possession of the rice so only physical delivery was required. Why did we buy it back ? Please explain
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Futures
Manu Jacob
CA Final
★ 6K+
1
201
NAV
AFM
answered on 09-Jan-25 17:52
Why the NAV given in question is considered as before discount and premium at the beginning and end of the year? Whether the quoted price and market price are same? If not, what is the difference between them?
latest answer
Return
Malaivalar mangai
CA Final
★ 0
3
221
Why is it abondanmonent
AFM
answered on 09-Jan-25 16:19
The question says whether to enter into joint venture. So wouldn't we presume it is a call option? How do know if it is an abandonment or investment option?
latest answer
Good Question. In a groth option there is no subsequent sale of operations or business In this question it is vert clear that once investment is made, after 5 years there is an option to buy The phrase " option to buy out" after 5 years is the key. The growth decision has value based on option to be bought out hence the option is an abandonment option and not an investment soption
Manu Jacob
CA Final
★ 6K+
1
185
Impairment Loss of Overall unit
Financial Reporting
answered on 15-Jan-25 13:55
Hi Sir, If the Value of the ABC instead of Rs3200 if it is 2900 the difference between 3072 & 2900 will it be allocated between X & Y or Y only or what will be allocation. Please explain.
latest answer
It is unlikely that the value of ABC is 2900. Else the company would sell of A,B & C separately (Recoverable amount of these 3 with Corporate asset X is 2900) and then Corporate Asset Y separately.
priyadharshini priya
CA Final
★ 2K+
1
180
Value of Office Headquarter
Financial Reporting
answered on 15-Jan-25 14:25
Hi Sir, Can you please clarify why the Office Building recoverable amount is completely ignored & Value in use of CGUs are only considered because we can sell the building separately also even that carries some value right. Am I wrong Conceptually?
latest answer
When you sell off the building, indirectly you are selling off the business as well. Also the building does not generate cashflows independently.
priyadharshini priya
CA Final
★ 2K+
1
168
Calculation
AFM
answered on 09-Jan-25 09:36
Sir, we solved this question but I did not understood in sub question 3, why did we squared the weights because the formula is covariance × weight of A and weight of B
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Var
Hrishikesh Pradhan
CA Final
★ 18K+
1
234
Replacement cost or Major inspection
Financial Reporting
answered on 09-Jan-25 09:58
As you have said that earlier inspection or replacement cost to be dercognised at the time of new replacement or inspection, how the same shall be deregognised whether by charging to P&L or to revaluation reserve? If a partnership firm is a subsidiary of a public company and thus it is required to furnish their financials as per Ind As, at that time when these cost are incurred there will be no revaluation reserve in partnership firm at that time should we charge to capital account?
latest answer
The partnership firm can prepare two financials. One as per normal accounting followed. Second converted into Ind AS. If asset is revalued, you will create a revaluation reserve under CApital Account.
Kavin Cj
CA Final
★ 0
2
218
Decrease in Liability > Carrying of decommssion cost part in PPE
Financial Reporting
answered on 09-Jan-25 10:00
As end of 10 Years, the carrying amount of decommission liability which intial Recognised as Rs 10000 will be 7500 (10000-2500) (Rs 2500 being the depreciation for 10 years for Rs 10000, so the carrying amount of the decommissioning liability cost in PPE is Rs 7500 and now we are reduced Rs 8000 from the PPE, which means no Decommissing cost included in PPE also we have reduced the carrying amount of PPE by Rs 500 (8000-7500), but it is inclued in Provision for decommissionig liability a/c But the words "if Decrease in Liability > Carrying Amount, excess is recognised as Income" is to be checked for the total Carrying Amount and not the just the decommission cost part present in PPE, Right ?
latest answer
We check for total cost of PPE and not only the decommissioning portion.
Hemachandra D
CA Final
★ 9K+
3
200