hello mr john
I dont understand why the full amounts of provisions are added back to the capital employed ( to get capital employed at start) while we take only the increase/decrease which is added or deducted back from profit to get the NOPAT. Shouldnt we only reflect the decrease or increase in provisions in the capital employed?
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11y ago#1It is because they are only provision, not true liabilities.
maybe you could explain to me this illustration:
provision for bad debts was $200 at 1 jan x2, $150 at 31 dec x2 and $250 at 31 dec x3
profit after tax for x3 was 4000 and for x2 3000
Capital employed per the sofp was $33500 at 1 jan x2 and $37000 at 1 jan x3
would really appreciate if you could explain the adjustment to the capital employed
thx in advance
ahh i got my answer from an article.: Items such as provisions, allowances for doubtful debts, deferred tax provisions
and allowances for inventory should be added back to capital employed, since
these represent over-prudence on the part of financial accountants and this
understates the true value of capital employed.
Anyway thx mr John
11y ago#4Glad you enjoyed the article :-)
May I know which article?
11y ago#6Maybe ice dawn will tell you :-)
technically its not a p4 article its a p5 one .
https://www.accaglobal.com/content/dam/acca/global/pdf/sa_july11_perfmeasurement.pdf here
11y ago#8Thanks, ice dawn :-)
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