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Hello Tutor, hope you are doing well.
I wanted a small clarification, the study text of Open tution in the Chapter 17 (Divisional Performance Measurement), talks about “Divisionaliasation”, is it same as “Decentralisation” or there’s some difference between these 2 terms.
It just means:
Decentralisation depends upon how much freedom “divisional” managers are given.
Divisionalisation can improve the quality of decisions made because divisional managers (making decisions) know local conditions and make more informed judgements.
Thankyou Tutor another follow up question from the study text only.
The following has also been mentioned in study text
“Note that in this illustration we have used the opening statement of financial position value for capital invested. In practice it maybe more likely that we would use closing statement of financial position value (which would be lower because of depreciation) there is no rule about this – in practice we could do which ever we thought more suitable.
However in examination always use opening statement of financial position value unless, of course, you are told to do differently”.
Can i know why in examination until and unless nothing is mentioned i shall use opening statement of financial position value, because while studying about ROCE, the B.P.P study text suggested it should be average as opening and closing figures can be abnormally high or low.
You do what the scenario tells you to:
Use capital employed (Total Assets – Current Liabilities or Equity + Debt)
Use Net assets if you are not given capital employed
Non Current Assets might be valued at cost, net replacement value or carrying value
The value of assets could be either an average or a value at the end of the period.
An average is preferable but you should use whatever you are given.
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