- May 29, 2018 at 11:04 am #454597
These are certain adjustments to be made to the EVA Calculation which I do not understand.
1. The allowance for doubtful debts was $6m at 1 jan 20X0. $5M at 31 dec 20X0, $7m at 31 dec 20X1.
So in the PL adjustment we add or minus the increment. Is that correct? say for the yr 20X0 we minus 1.
2. How do u adjust the Capital Employed?
3. Company incurred non cash expenses of 0.3m each years. We add to the Profit figure, is that all?May 29, 2018 at 12:03 pm #454614
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.May 29, 2018 at 12:16 pm #454618
As per the Kaplan text, in 20×0 they add 6 and add 5 for allowance for doubtful debts why is that ?
Plus why do u add last yr non cash expenses to 20×1.
I don’t understand pls do clarifyMay 29, 2018 at 1:11 pm #454627
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.May 29, 2018 at 1:20 pm #454633
1. Not clear on allowance
2. Non cash expenses we don’t deduct it from profits okay, but why do we add it back to CE? Confused
Plus CE equals to to total assets minus current liabilities . Non cash expenses what’s the link here
This seems a small question but I don’t get itMay 29, 2018 at 7:18 pm #454702
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.May 31, 2018 at 6:00 pm #455140
Okay I’m just gonna remember last yr non cash expenses add to the current yr opening CE ..
Can u ask me some questions regarding this? To make it real perfect.
I hate transfer pricing and EVA questions.May 31, 2018 at 7:12 pm #455159
Try the example on p84 of our P5 notes.
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