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Dec 2007 Q2 Alpha a) RI

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA APM Exams › Dec 2007 Q2 Alpha a) RI

  • This topic has 4 replies, 2 voices, and was last updated 7 years ago by ursulaanna45.
Viewing 5 posts - 1 through 5 (of 5 total)
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  • November 21, 2015 at 3:24 pm #284341
    ursulaanna45
    Member
    • Topics: 33
    • Replies: 47
    • ☆☆

    Hi

    I would like to ask about the way RI was calculated in the answear to this question

    When calculating RI we need to take return less depreciation, is that correct?

    But if we do that then the value of capital employed (equipment in this case) falls by the amount of depreciation charged for the year?

    in the solution in Year 1 cost of capital is calculated using full 45m amount ? should it not be 30m, becasue 15m was depreciated?

    Thank you

    November 21, 2015 at 4:14 pm #284362
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10192
    • ☆☆☆☆☆

    RI is usually calculated using the capital at the start of the year. (EVA is always calculated using opening capital).

    November 21, 2015 at 4:45 pm #284372
    ursulaanna45
    Member
    • Topics: 33
    • Replies: 47
    • ☆☆

    ok
    that makes sense now, would the same be with ROCE, capital employed is the figure from the start of the year?

    and for both in general: ROCE and RI, return/profit would be usually before tax or should it be before interest and tax?

    Thank you

    November 22, 2015 at 9:10 am #284463
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10192
    • ☆☆☆☆☆

    ROI and RI: profit before interest and tax. Note that EVA is after tax and before interest (NOPAT)

    November 22, 2015 at 9:31 am #284471
    ursulaanna45
    Member
    • Topics: 33
    • Replies: 47
    • ☆☆

    That’s all clear

    Thank you

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