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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Capital employed
Hello John,
Much obliged for all your efforts.
I do not seem to understand the following sentence.
“Capital employed which is calculated using historical cost in understated compared to current value capital employed.”
Capital employed : profit before tax and interest / equity + long-term liabilities.
when we are using historical cost we charge less depreciation compared to current value, therefore, the profit is overstated.
So, our profit before tax and interest is overstated, ROCE also should be overstated as well.
I’d appreciate it very much if you could illuminate me.