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Dear Sir,
Could you please explain why in Question 241 of BPP Revision Kit we do not subtract the depreciation of 2000 from 15000 when calculating the increased capital employed in case of buying new machine.
Thank in advance
Because the last line of the question says to value non-current assets at the start of year carrying amount.
Hello Sir John,
Trust you are good.
Could you please look into the question below for solution. The question is from BPPA new company has a non current asset of $460,000 which will be depreciated to nil on straight line basis over ten years. Net current asset will consistently be $75,000 and annual profit will consistently be $30,000. ROI is measured as a return on net asset.
Calculate ROI for yr 2 & 6.
Thank you for you time and effort on this.
If it is in the BPP Revision Kit then please tell me the number of the question 🙂
(Surely the answer is in the Revision Kit anyway, so I am puzzled why you are asking me for the answer 🙂 )
Hello Sir John,
Thank you for your prompt response to my question. I have just manage to solve it now after several attempt.?
The question is in the BPP note and the answer was there however, it does not show the calculation.
Good morning Mr Moffat,
Q276 of BPP’s revision kit (pg74):
Box Co has an operating profit of $2000 and operating assets of $95000. The cost of capital is 12%. There is a proposed investment of $10000 which will increase operating profit by $1400.
What is the RI with and without the proposed investment?
While I found no difficulty in working ROI and RI, the answer on pg156 shows a calculation of 850 depn. I’d like to know how this calculation came about.
Thank you.
ClaireQ280 Biscuits and cakes. pg 75-76 – BPP Revision Kit
Qd asks for a recalculation of expected annualised ROI and RI after adjusting for a new investment.
When working it out, I calculated the depreciation for the year and deducted from the profit. I also deducted this depreciation from the net assets to complete the double entry.
However, the answer in the book deducts the depn only from the net profit and leaves the capital employed at full cost.
Can you explain what I’m doing wrong please?
Thanks again.
ClaireQ276:
The depreciation should not be there – it is a very bad mistake by BPP.
(Operating profit is already after depreciation anyway 🙂 )Q280:
The examiners answer has assumed that it is being calculated on the opening net assets (on the basis that it is the net assets at the beginning of the period that earn the profit for the period).
If you used the closing net assets (which is what you have done) then you would still get the marks.
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