Coal India Valaution

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Joined: Mon Oct 15, 2012 1:46 pm

Coal India Valaution

Postby kr79 » Mon Oct 15, 2012 4:19 pm

This is with regard to the Coal India IPO valaution case study. I noticed that in the Asset Schedule, you have a line item called "P&L Item:Depreciation Non Expense". I'm trying to understand what this is and how did you generate these numbers in the P&L.

Awaiting your response.



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Re: Coal India Valaution

Postby pankaj » Thu Oct 18, 2012 11:17 am

While building financial models, many times we need to make adjustments and reverse calculations, to get the final numbers.
Suppose we are given with opening inventory, closing inventory, inventory sold during the year and asked to find the purchases during the year. So, in this case reverse calculation needs to be done to get the purchase figures.

In the same fashion, in the Coal India case, we had the depreciation charged during the year (given in the P/L) as well as accumulated depreciation figure (given in the balance sheet). But the problem was increase in the accumulated depreciation from one period to another was not exactly by the amount of depreciation charged during that period (depreciation no. figure in the P/L), so these gave us the hint that there should be either sale or disposal of fixed assets during the period which in turn needs adjustment in the depreciation amount.
Remember, whenever there is a sale/disposal of fixed assets during a period, depreciation charged till date on that particular assets needs to be removed from the accumulated depreciation figure in that particular period.

So, in Coal India case, we have done the reverse calculation to get the amount that needs to be adjusted because of sale/disposal of assets. And we called the amount as "P&L Item: Depreciation Non-Expense," which you can call as "Depreciation Adjustment."

Hope this helps! :)

Posts: 5
Joined: Mon Oct 15, 2012 1:46 pm

Re: Coal India Valaution

Postby kr79 » Thu Oct 18, 2012 5:53 pm

Thanks Pankaj. The explanation is quite clear.

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