answer only question b and c
Section A Answer any TWO questions from this section. On 1 January 2019, the company's director invested in an asset that produces the 1. The following information relates to Oldham Mutual Fund Management (OMF) Ltd. following net cash receipts (after deducting all costs) from the investment. No further net cash receipts are expected after 31 December 2021. 200,000 460,000 800,000 Expected net cash receipts for 2019 Expected net cash receipts for 2020 Expected net cash receipts for 2021 Expected cost of capital for 2019 and beyond 4%/ On 31 December 2019, however, he had to revise downwards his expectations for future income due to a deteriorating economic environment. Actual net cash receipts for 2019 150,000 Expected net cash receipts for 2020 400,000 Expected net cash receipts for 2021 670,000/ Actual cost of capital for 2019 6% Actual cost of capital for 2020 10% Expected cost of capital for 2021 and beyond 10% Unfortunately for the company, the cost of capital has increased as the central bank attempts to fight inflation by raising interest rates. This new rate is expected to remain at that level for the foreseeable future. All cash flows arise at the end of the year. Required: (a) Define Hicks' approach to income measurement and explain its implications for accountants. (7 marks) (b) For the asset held by the company, calculate to the nearest 17 (0) Hicks' income ex-ante for the year to 31 December 2019 (ii) Hicks' income ex post 1A and 10 for the year to 31 December 2019 Hicks'income ex post 2A and 2B for the year to 31 December 2019 (12 marks) Without further calculation, briefly explain why the following differences arise: (c) (0) (ii) ex ante versus ex post income ex post income A versus B ex post income 1 versus 2 (6 marks) Section A Answer any TWO questions from this section. On 1 January 2019, the company's director invested in an asset that produces the 1. The following information relates to Oldham Mutual Fund Management (OMF) Ltd. following net cash receipts (after deducting all costs) from the investment. No further net cash receipts are expected after 31 December 2021. 200,000 460,000 800,000 Expected net cash receipts for 2019 Expected net cash receipts for 2020 Expected net cash receipts for 2021 Expected cost of capital for 2019 and beyond 4%/ On 31 December 2019, however, he had to revise downwards his expectations for future income due to a deteriorating economic environment. Actual net cash receipts for 2019 150,000 Expected net cash receipts for 2020 400,000 Expected net cash receipts for 2021 670,000/ Actual cost of capital for 2019 6% Actual cost of capital for 2020 10% Expected cost of capital for 2021 and beyond 10% Unfortunately for the company, the cost of capital has increased as the central bank attempts to fight inflation by raising interest rates. This new rate is expected to remain at that level for the foreseeable future. All cash flows arise at the end of the year. Required: (a) Define Hicks' approach to income measurement and explain its implications for accountants. (7 marks) (b) For the asset held by the company, calculate to the nearest 17 (0) Hicks' income ex-ante for the year to 31 December 2019 (ii) Hicks' income ex post 1A and 10 for the year to 31 December 2019 Hicks'income ex post 2A and 2B for the year to 31 December 2019 (12 marks) Without further calculation, briefly explain why the following differences arise: (c) (0) (ii) ex ante versus ex post income ex post income A versus B ex post income 1 versus 2 (6 marks)
