EVA - technical artical — OpenTuition Forums

LLily5y ago

Dear Ken, A question regarding the article posted on the website: https://opentuition.com/forum/ask-acca-tutor-forums/ask-the-tutor-acca-advanced-performance-management-apm-exams/ Example 3: 3. At the end of 2008, the company had completed another research and development project, Project X. Total expenditure on this project had been $1,500,000, none of which had been capitalised in the financial statements. The product developed by Project X went on sale on 1 January 2009, and the product was a great success. The product ’s life cycle was only two years, so no further sales of the product are expected after 31 December 2010. Based on IAS38, all expenditures are not allowed to retrospective recognition. None of which had been capitalised in the financial statement. If project X was not capitalised, no amortization should be done, correct? I can't understand why $750k needs to be amortized in NOPAT calculation. could you please help me? Thank you, Lily

kengarrettTutor5y ago#1

EVA pays little heed to accounting standards. For example, R&D and marketing costs are added back for NOPAT whereas accounting standards would say they should be written off. Similarly, economic depreciation replaces conventional book depreciation. If R&D is capitalised for NOPAT, for consistency it should then be amortised over its estimated useful life.