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Calculating capital employed

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Calculating capital employed

  • This topic has 7 replies, 2 voices, and was last updated 5 years ago by P2-D2.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • March 12, 2020 at 6:53 pm #565179
    shawn15
    Participant
    • Topics: 1
    • Replies: 12
    • ☆

    Hello. I wanted to calculate capital employed for a company by using the following equation; Capital employed = shareholders’ funds + interest bearing debt.

    I know borrowings under non-current liabilities are included under interest bearing debt, but I wanted to ask if borrowings under Current liabilities should be included as well. If not, why not?

    March 14, 2020 at 11:16 am #565254
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7141
    • ☆☆☆☆☆

    Hi,

    The current and non-current elements of the borrowings are included within the interest bearing debt as they will be accruing interest and the funds will have been used to help invest in making a profit.

    Thanks

    March 15, 2020 at 4:03 pm #565286
    shawn15
    Participant
    • Topics: 1
    • Replies: 12
    • ☆

    Thank you! If I may follow it up with another question, I wanted to calculate the operating profit margin for a group of companies using their consolidated statement. Should I include the Share of loss/profit from associates when calculating operating profit?

    March 15, 2020 at 4:22 pm #565287
    shawn15
    Participant
    • Topics: 1
    • Replies: 12
    • ☆

    And just to follow up on my previous question, when calculating capital employed do we include the value of the non-controlling interest as stated on the statement of financial position?

    March 18, 2020 at 1:07 pm #565382
    shawn15
    Participant
    • Topics: 1
    • Replies: 12
    • ☆

    Hi! I managed to find the solution for my last two questions, but in the process came across another issue.

    Assuming my consolidated sfp has the following
    Capital and reserves attributable to the Company’s equity holders
    Share capital
    Share premium
    Revaluation reserve
    Translation reserve
    Retained earnings
    Proposed dividends

    Non-controlling interest

    Should I add all these up when calculating the value of the shareholder’s funds? Or should I omit the Revaluation reserve and the Translation reserve? Thanks

    March 19, 2020 at 9:26 am #565411
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7141
    • ☆☆☆☆☆

    @shawn15 said:
    Thank you! If I may follow it up with another question, I wanted to calculate the operating profit margin for a group of companies using their consolidated statement. Should I include the Share of loss/profit from associates when calculating operating profit?

    You’re welcome! No, we would not include this as part of operating profit as it comes from our investments effectively.

    Thanks

    March 19, 2020 at 9:26 am #565412
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7141
    • ☆☆☆☆☆

    @shawn15 said:
    And just to follow up on my previous question, when calculating capital employed do we include the value of the non-controlling interest as stated on the statement of financial position?

    No worries. Yes, NCI is part of equity and so would form part of the capital employed (=equity + net det).

    Thanks

    March 19, 2020 at 9:28 am #565413
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7141
    • ☆☆☆☆☆

    @shawn15 said:
    Hi! I managed to find the solution for my last two questions, but in the process came across another issue.

    Assuming my consolidated sfp has the following
    Capital and reserves attributable to the Company’s equity holders
    Share capital
    Share premium
    Revaluation reserve
    Translation reserve
    Retained earnings
    Proposed dividends

    Non-controlling interest

    Should I add all these up when calculating the value of the shareholder’s funds? Or should I omit the Revaluation reserve and the Translation reserve? Thanks

    Shareholders’s funds is effectively the equity section so you would include everything in the equity section. One thing that shouldn’t be in your figures above is the proposed dividends. They are just disclosed and not accounted for.

    Thanks

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