EVA

For the debt allowance during X0 profit will have been credited 1m. It shouldn't be so deduct 1m. During X1, profit was charged 2m. It shouldn't be, so add 2m back. CE is not affected because the figure you must use is opening CE. So for X0 EVA, no adjustment is needed. For X1 CE deduct 1m to allow for the reduction in X0 profit. 0.3 has to be added back to each year's profit. 0.3m to be added to CE for the X1 EVA, but no adjustment needed for the X0 EVA because opening CE must be used.

Sorry, they are right about the debts. If no allowance had ever been made the CE would have been 6 larger at 1.1.x0 and 5 larger at 1.1.x1. General allowances are ignored for EVA so think what the figures would be without them ever having occurred. These are the non-cash expenses for x0. They should not be deducted from profits, so the CE at the start of x1 ie brought forward from the end of x0, would be 0.3 larger. Hope that's ok now.

1 If allowances are not to be allowed in the profit and loss account, reserves, so CE, will be greater. 2 As above. If expenses are less, profits and reservew are more, so CE are greater.

Try the example on p84 of our P5 notes.