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Could you please tell me when you say that depreciation is already being deducted to arrive at PBIT which is used in the ARR formula so can you tell me whether the depreciation was included in the cost of goods sold or it was included in the operating expenses?
I think depreciation is always charged in the COGS unless told otherwise! So when PBIT is already given in the question we don’t have to deduct depreciation from it.
Is that correct?
Sorry to intervene,
But most ARR questions gives
Operating Cash inflows
So you have to make it profits by
Deducting depreciation..PBIT won’t be given in the exam..(mostly)It is of no relevance whatsoever whether depreciation is included in cost of goods sold or in operating expenses.
PBIT is always after charging depreciation and so if you are given the PBIT you will not subtract depreciation again.
If however (and more likely) you are given the operating cash flows then you do need to subtract depreciation to arrive at the profit (because depreciation is not a cash flow and will not therefore have been included in arriving at the operating cash flows).
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