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There were 2 questions in BPP kit in which following things were provide
Sales
Cost of sale
Interest
Expense
SHARE CAPITAL & RESERVE
LONG TERM BORROWING
non current asset
Receivable
Inventory
PayableIn one solution they calculated capital employed using formula ( operating profit/(share capital &reserve +long term debt)
In other one they used formula ( operating profit/( total asset – current liability)Can you please explain why they use different formula . There was nothing mentioned in question
And answer was different for another question because i tried using same formula for next question that I use for the previous one
Capital employed = share capita& reserves + long term borrowing.
This is always equal to total assets less current liabilities.
So you can calculate the capital employed either way depending on what information you are given in the question.
I do explain this in my free lectures. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
I applied both the formula to check if the answer is same using both the formula . But it was not . That’s i am confused
If the question you are referring to is in the correct edition of the BPP Revision Kit then tell me the number of the question.
$’000
Sales 2540
Cost of sale 1425
Interest 11
Expense 600
SHARE CAPITAL & RESERVE 2400
LONG TERM BORROWING 250
non current asset 1650
Receivable 347
Inventory 180
Payable 318
Bank balance 36
Using formula( total asset -current liability )capital employed is 1895 (1650+347+180+36–318)
And using (long term borrowing + share capital & RESERVE ) capital employed is 2650You are quite right and it is appalling of BPP. I have been trying to get on their website to see if there is an errata sheet listing corrections, but I cannot access it.
Fortunately this will not happen in the exam, share capital+reserves + long-term debt must always be equal to total assets less current liabilities.
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