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Sir
Please help. If i have capitalized a marketing expense why would i add it back to capital employed, it is already a non current asset or part of one. Secondly why would i then add it back to profit when i never expensed it in the first place????
So, I assume in the original financial statements, marketing expense had been expensed. This is normal financial reporting treatment. EVA claims that this type of expenditure is more in the nature of capital expenditure, so should be capitalised.
If the marketing expense was incurred this year, it would NOT be added back to capital employed because the CE for EVA is the opening CE. However, the amount would be added back to profits for the year.
If the marketing expense was incurred last year, it would be added back to capital employed (to adjust the opening CE), but would not have to be added back to this year’s profit.
Your question seems to imply that the marketing spend you are dealing with had always been capitalised in the financial statements (unusual). If that were so, no adjustments are needed for EVA.
If this does no answer your query, I think you need to refer me to the example you are talking about.
Hi
thanks for the response. i didn’t have email notification on so did not realize you responded.
The example is the paper P5 Dec 2015 hybrid Q1 off the ACCA website. the marketing had been capitalized for 2 years already and they are adding it back into profit (NOPAT) when it was never expensed. i am struggling a bit with EVA because although you lesson made it reasonably clear, other examples don’t seem to follow the rules. I use your lectures as the main lectures then i pick up lectures from as many other sources as possible, however other lectures on EVA do not seem to go into the exacts of what gets deducted and added like yours so i am limited
ThanksIt might be bad wording, but they mean in Note 5 that the two years of marketing spend had been expensed (as it should be in financial reporting of P&L). In the EVA, where it says “Marketing capitalised” it means “Marketing now capitalised for EVA purposes, having been expensed to P&L”
HTH
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