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Sir,
I have seen many questions in the BPP kit that ask to calculate ROI.
They give details e.g the division will sell a machine for 6.000In their solution, there is a -6.000 effect on capital employed due to sale of the machine but I dont understand shouldn’t the divison also dont get cash or AR of 6.000.
Thank you in advance for you answer
When calculating ROI, the division’s capital employed is determined by subtracting the net book value (NBV) of non-current assets from the total assets.
In this case, the sale of the machine for $6,000 would result in a decrease in the net book value of non-current assets by $6,000.
However, it is important to note that the cash received from the sale of the machine should be added to the division’s cash balance.
This increase in cash would not affect the calculation of capital employed but would impact the division’s overall financial position.
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