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Hi,
In the BPP study text, this is given as Total Assets – Current Liabilities without any further qualification. However, in the BPP revision kit mock exam 1 Q1, Equity + Debt is used to calculate the correct percentage.
These are not equivalent – deferred tax is included in the fist but not the second. So what is the correct formula to use?
Thanks
The question that you should have been asking is whether the balance in the deferred tax account represents capital employed …
… and the answer is debatable
Personally I’m inclined to say “No” and in that case the denominator would more correctly be shown as Equity + Loan liabilities
In the examination it is not unusual for the examiner to give you the basis of the calculated ratio so you will be able to see the make up of the denominator
In that case, for the sake of comparability, use the same basis in your own calculations
OK?
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