Why the calculation of average capital employed of Fennel is calculated by weighted avg but not avg of (begining + closing capital employed)/ 2 ?
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Chicory question 15 in APL revision kit
2y ago#1See note 1 in the question:
Notes 1 $6m of new capital was introduced into Fennel on 31 March 2015. Normally, new net investment is spread evenly over the year. 2 Operating profit is after charging depreciation of non-current.
Simple average works if capital is added evenly, but in Fennel a lump sum was added 3 months into the year so it is much better to use a weighted average.
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