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- This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
- June 22, 2016 at 12:01 pm #323800complicatedMember
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I am confused at how the average investment figure is calculated, and as far as I know the standard formula to derive the figure is:
( Capital cost – disposal value ) / 2
The answer from one question (BPP practice bank question 22) gave:
[ (total assets – current liabilities) + total equity – amount added to reserves] / 2
Can you please explain this to me?June 22, 2016 at 5:09 pm #323823John MoffatKeymaster
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I assume you are referring to the average investment when calculating the ARR?
If you are then it is not (capital cost – disposal value) / 2.
It is (capital cost + disposal value)/2 (for an explanation of this you need to watch my free lectures).
I am guessing you mean the practice bank in the BPP Study Text. If so, then I do not have it – I only have the Revision Kit, and so without seeing the question I cannot really explain.
(Although it is probably to do with the fact that the total long-term capital (equity + long-term debt borrowing) is always equal to total assets less current liabilities)
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