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Hi Mr.John
While calculating annualised ROI for B after adjustment, why dont we subtract 480,000 depreciation from the capital employed?
Whereas in BPP section A question 239, depreciation has been deducted from the capital employed.Please advise.
Thank youBiscuits and Cakes assumes we use the opening net assets (so before depreciation for the current period) on the basis that it is the opening net assets that generate this periods profits.
Q239 however specifically says to use the average net assets.
So if I use closing net assets for Biscuits and cakes, do i still score marks??
Thank youYou will certainly not lose many marks (provided that your workings are clear so the marker can follow them).
The marks are for the workings and not for the final answer 🙂
I have a confusion with question 1, section A of the June 2015 exam.
They have not deducted the depreciation of 54000 from the capital employed of 2.7m while calculating the RI.
I got the answer as 165780 and so i chose the closest answer 162000.
But what if this was a calculation question?In future you must start a new thread when it is a new topic or a new question.
The question asks for the annual residual income, so we can’t subtract depreciation from the capital employed because it would mean every year the capital employed would get smaller and the residual income would therefor keep changing.
So in conclusion, for RI we should not deduct depreciation from Capital employed and for RoI , it depends if its net closing assets or opening assets.
Am I right?
Thanks for your response.
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