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Hi all,
First of all, good luck for Thursday, me 4th time lucky!…I have a question on EVA as I’m getting quite confused. So far, my understanding of the calculation is as follows:
NOPAT:
PAT
Add back: Non cash items
Add back interest x (1-tax)
Add back deferred tax
Add back depreciation
Add back lease charges
Add back R&D charges
Add back provisions
Deduct Economic Depreciation
Deduct R&D Amortisation ?Then Capital Employed:
Brought forward Capital Employed
Add R&D Brought forward
Add leases brought forward
Add Provisions ??
Add economic depreciation ??
What else ??I don’t really know whether economic depreciation or provisions should be added back, I also don’t know what else t add back to CE. Please can you help ?
Thank you.
https://www.accaglobal.com/content/dam/acca/global/pdf/sa_july11_perfmeasurement.pdf
This is a great article on EVA… although it came up 12 months ago I’m not sure how good the tips really are…. watch it now appear in the exam 🙂
This will definitely appear. I read the article, but I am still not sure about for example, adding economic depreciation to Capital Employed. Would someone be able to kindly confirm this please ?
Thank you.
PAT
Amortisation of any R&D need to be added backCapital Employed
We are taking last year closing balance, so unless they specified about difference in economic dep and book dep. you can assume both are same. sameway for provision.There is a past paper but I can not remember the year. In answer sheet they have adjusted last year provision in capital employed. Please check
Hello, the EVA has been properly explained in the revision video in the December 2012 question 3 on stillwater Services (SS) & all the adjustments ie depreciation & economic depreciation included.
Can anyone help me with kaplan mock & final assessment & answers for P5, am extremely desparate. Or send it to my email sarahnambule@gmail.com. Thanks in advance & all the best on Thursday during the exam.With all respect, but you should open a separate thread for your query about mock exam.
I have reviewed the lecture and also reviewed all notes. My question is simply asking whether the Economic Depreciation should be added back to the Capital Employed. The part to be added back to PAT I understand.
Thanks.
Hi,
I think if it says in the prior year capital employed includes accounting deprecation then you would add back the accounting depreciation and deduct the economic depreciation.
Deduct R&D Amortisation?
You should amortize this to the period it relates to i.e when the economic benefit was received…so in the article- the product lifecycle is 2 years and no further sales will be anticipated after 31/12/10 so this was treated as an expense over the 2 years.Provisions – capital employed – you add back the total provision as oppose to the movements as the balance sheet shows the accumulative amounts. This will be the opening balances.
also, with operating leases you treat it as a finance lease –
1. add back lease payments
2.deduct depreciation
3. and capitalize the pv of future lease payments
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