EVA

Currently all $8m of development has been deducted from profit. 4/5 of that has to be added back so that only one year of amortisation is charged.

Thanks.. I have seen a similar question and the confusion still appears. R LTD had profit of $115m for the current year after charging lease charges of $6 million and advertising costs of $4 million for a new product. The new product was launched at the end of the current year and is expected to be on the market for five years. The cost of capital is 8% per annum. Non-current assets have a historical cost of $160m and a replacement cost of $200m. They have been depreciated at 10% per annum. The company has working capital of $22m. Ignoring taxation, what is the Economic Value Added® of R Ltd in $ million, to 2 decimal places? The question is very similar to the question above, instead of development costs we have advertising and lease charges. NOPAT Profit= 115m less tax = o Add back advertising costs= 4m*4/5th= 3.2 add back leases =6m add historic deprecation= (16) less economic depreciation= (20) total =120.2 my advertising costs figure is wrong- but I thought as you said before.. that all 4m of the advertising costs has been deducted from profit. so similar to above 4/5th of that has to be added back to that one year of ammortisation is charged? Advertising and development costs can be ammortised right?

Advertising and R&D costs are generally treated the same way. See: https://www.google.es/url?sa=t&source=web&rct=j&url=https://www.accaglobal.com/content/dam/acca/global/pdf/sa_july11_perfmeasurement.pdf&ved=0ahUKEwi9qfvNt6XRAhUBmxQKHU_wCTgQFggaMAA&usg=AFQjCNHfrdKFv7QpISWwe5drsaL2JtC1Cw I don't know why the treatment is different here.