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EVA in the part of the question "International Enterprises"

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › EVA in the part of the question "International Enterprises"

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 14, 2015 at 6:29 pm #241301
    at800
    Member
    • Topics: 29
    • Replies: 32
    • ☆☆

    Dear tutor,

    Strangely enough, I have an additional question on “International Enterprises”.

    Thus, ACCA article states that in the bounds of EVA calculation, “capital = equity plus long-term debt of the company at the start of the period”. At the start of the period (sic).(https://www.accaglobal.com/content/dam/acca/global/pdf/sa_july11_perfmeasurement.pdf)

    Though, both BPP and ACCA answers use the year end capital employed for 2008 and 2007: (https://www.accaglobal.com/content/dam/acca/global/pdf/p4_2007_dec_a.pdf)

    In my humid opinion, for 2007 there should be 45+130=170 (as of 31/12/2006) and for 2008 there should be 45+179=224 (as of 31/12/2007).

    Am I correct?

    April 15, 2015 at 7:33 am #241343
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54702
    • ☆☆☆☆☆

    I agree with you – we would normally use the opening capital employed (and it was possible in this question since the question gave the 2006 statements).

    BPP has simply done it the way that the examiner did in his answer.

    The reason is that the question was set by the person who was the examiner before the previous examiner (i.e. two examiners ago) and he had written an article (which is now very old and has disappeared from the ACCA website) in which he used the closing capital employed. However, these days you should use the opening capital employed (provided obviously that the information is available – if we were not given the 2006 statements then there would have been no choice but to use closing figures, even though it would not be strictly accurate (and you would mention this))

    April 15, 2015 at 9:11 am #241365
    at800
    Member
    • Topics: 29
    • Replies: 32
    • ☆☆

    Thank you very much!

    By the way, I’ve found an additional strange thing in the answer to this question. BPP has written in top tips regarding preparation of CF statement : “Key things to remember are that the figures for interest, taxation, and dividends in the cash flow statement will be the accrued figures at the end of the previous years…”.
    Why? There is nothing in the question that allows to make such an assumption.
    Therefore, one should use T-accounts like in P2. The result is the same, though in my humid opinion, there is no alternative for T-accounts.

    Am I correct?

    April 15, 2015 at 4:10 pm #241398
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54702
    • ☆☆☆☆☆

    You are quite correct – there is no reason why the figure should simply be the previously accrued figure.

    (If there is not enough information in a question then you may have to make assumptions, but only if there is not enough information).

    Whether you use t-accounts or not depends on what you find easiest and quickest 🙂

    (By the way, I think you mean ‘humble’ not ‘humid’ 🙂 )

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