ROI

Please do not simply set test questions and expect an answer. You must have an answer in the same book in which you found the question (if not then you should be using a Revision Kit from one of the ACCA approved publishers because they have answers and explanations). You should ask whatever it is in the answers that you are not clear about.

I assume that you have watched my lectures (they are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well), and are therefore happy that the ROI is profit as a % of the net assets.

The profit for the year is recorded as 190,000, but should be 10,000 higher at 200,000 because the profit on the sale of the non-current asset was not recorded.

The net assets are recorded as $1,000,000 but they should be 10,000 higher also.
(The sale results in non-current assets falling by 40,000 but cash increasing by 50,000, so an increase in net assets of 10,000. The purchase has no net effect because non-current assets increase by 250,000 but cash falls by 250,000.)

You are welcome 🙂

‘Anyone’ will always be me when you ask in this forum because I am the F5 tutor here 🙂

Initially, the gross profit is 40%, so for every 100 sales price the profit is 40.

In the third year, the sales price falls by 5%, so the profit will be 35 for every 95 sales price (because the costs of not change). (The examiner has written it as (40 – 5)/100(0.95), which is the same thing but looks more complicated 🙂 )

In the fourth year, the sales price falls again by 5%, which means it falls by 5% x 95 = 4.75.
So the profit will fall by 4.75 as well.
So the profit becomes 40 – 5 – 4.75, for every 100 x 0.95 x 0.95 of sales.

This was the previous examiner, and he did make it look more complicated than it really is. It would maybe have been easier to do it the way he suggests below his workings, and calculate the profit as sales less variable costs.