[darryn]

Good evening

Please can you help me understand the below.

Why when calculating ROCE, ignoring the associate we subtract the “Investment in associate” Non-current Asset on BS from the capital employed figure?

Capital employed is either:
1) Equity plus LTD
2) Total Assets less current Liabilities

If we used no. 2 I understand that Equity and LTD would be less if Total assets is reduced.

If we use no. 1 does it assume we financed this investment through debt so LTD would increase. If we remove the associate from the question then LTD would decrease?

What would the JNL entries be on investment in associate?

Dr Bank
Cr Non-current liabilities

Dr Non-current assets
Cr Bank

[darryn]

Thanks alot for the quick feedback. Is confusing but I get it now. Thanks again

[darryn]

Good Day
Scenario: BB has some 5% loan notes in issue, which are redeemable in 3 years time at a premium of 12.5%. The current market value of the loan notes is $98.

Using discount rates of 5% and 10% calculate YTM.

Question: I am trying to understand why the $98 is seen as an outflow (-) and the payment of $5 for 3 years and premium of $112.5 is seen as inflows (+) as per the answer provided?

As it’s an “issue” it is a liability which means we make the payment of 5 and 112.5 which are outflows (-)?

Is my understanding correct or am I missing something?

[Author]

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