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Calculating capital employed for ROI

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Calculating capital employed for ROI

  • This topic has 1 reply, 2 voices, and was last updated 1 month ago by LMR1006.
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  • August 3, 2023 at 9:45 am #689322
    bcc32788
    Participant
    • Topics: 1
    • Replies: 0
    • ☆

    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 6.000

    In 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

    August 3, 2023 at 6:26 pm #689349
    LMR1006
    Keymaster
    • Topics: 0
    • Replies: 293
    • ☆☆☆

    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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