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in the Kaplan textbook it says to deduct amortisation for the period of expenditure on advertising r&d and employee training. In September 2019 arkaig paper, there was economic depreciation and this included a 10m write down of the brand building (basically advertising) which we incurred last year aswell. in the article however it says to ‘deduct economic depreciation on previous years Eva adjustment’. Can I confirm I am correct in my thinking. in the September 2019 paper, we deduct the previous years economic depreciation from the brand building in this years calc of nopat as it was incurred last year. Amortisation is a different thing to economic depreciation (is it?) and if it was amortisation as in the Kaplan textbook, we would have only deducted it from operating profit only if we incurred it in this year.
I don’t have the Kaplan book so am at a disadvantage. However:
1 Depreciation applies to tangible non-current assets and amortisation applies to intangible assets, like advertising build expenditure.
2 With respect to depreciation, economic depreciation should be substituted for book depreciation where possible so that the brought forward capital employed has suffered historical depreciation and NOPAT is charged with the current year’s economic depreciation.
3 Amounts like R&D and marketing build expenditure are to be treated like assets then amortised. The B/f capital employed will contain the capitalised amounts less their historical amortisation. NOPAT will be charges with the current year’s amorrisation charge.
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