interpretation

Because the date of acquisition was right on the year end so that $22,000 profit by Fatima was not any part of capital employed by Harbin for any part of the year Clear?

Ok thank you but why is pbit of Fatima deducted from capital employed. Isn't it the the loan amount of 100000 which was used to finance the acquisition to be deducted from capital employed 114000. Why is pbit of Fatima deducted from Capital employed amount of 114000

The loan of $100,000 is not included within the capital employed amount of $114,000 That $114,000 is the equity capital of Harbin and is separate from the 10% loan capital So, if we're excluding the $100,000 loan capital that was used to acquire the fatimah entity, then we must also exclude the Fatimah results OK? I don't think that you have given me all relevant information! What reference is the exam from which this question is taken?

Harbin financial statements for Y\e sep along with extracts from Chief executive's report S.P\L 2017 2016 $000 $000 Revenue 250,000 180,000 C.O.S (200,000) (150,000) G.P 50,000 30,000 Operating expenses (26,000) (22,000) Finance costs (8,000) (nil) P.B.T 16,000 8,000 Income tax expense (at 25%) (4,000) (2,000) Profit for the year 12,000 6,000 S.F.P 2017 2016 $000 $000 N.C.A 210,000 90,000 P.P.E 10,000 nil Goodwill 220,000 90,000 Current assets Inventory 25,000 15,000 Receivables 13,000 8,000 Bank nil 14,000 38,000 37,000 258,000 127,000 Total assets Equity ans liabilities 100,000 100,000 Equity shares of $1 each 14,000 12,000 Retained earnings 114,000 112,000 N.C.L 8% loan notes 100,000 nil C.L Bank overdraft 17,000 nil payables 23,000 13,000 current tax 4,000 2,000 44,000 15,000 258,000 127,000 Total equity and liabilities Extract from the chief executives report: 'Highlights of harbins performance for the year ended 30 september 2017: An increase in sales revenue of 39% Gross profit margin up from 16.7% to 20% A doubling oh the profit for the period In response to the improved position the board paid a dividend of 10 cents per share in september 2017 an increase of 25% on the previous year'. You have also been provided with the following further information.

And what's your question?

on 1 october 2016 harbin purchased the whole of the net assets of fatima (previously a privately owned entity) for $100million, financed by the issue of $100,000 8% loan notes. The contribution of the purchase to harbins results for the year ended 30 september 2017 was: $000 Revenue 70,000 C.O.S (40,000) G.P 30,000 Operating expenses ( 8,000) P.B.T 22,000 there were no disposals of N.C.A during the year The following ratios for harbin for sep 2016 return on Y\e capital employed 7.1% (profit before interest and tax over total assets less current liabilities) Net asset (equal to capital employed) turnover 1.6 Net profit (before tax) margin 4.4% Current ratio 2.5 Closing inventory holding period (in days) 37 Trade receivables collection period (in days) 16 Trade payables payment period (based on coast of sales) (in days) 32 Grade (debt over debt plus equity) nil Required (a) calculate equivalent ratios for harbin for 2017 (b) Asses the financial performance and position of harbin for the year ended 30 september 2017 compared to the previous year. your answer should refer to the information in the chief executives report and the impact of the purchase of the net assets of fathima Answer.. in answer part calculation of ratios without fathima... return on year capital employed 24000-22000/114000-(22000-5.500) 5.500 =25% tax i still dont get why do we deduct 22000 PBIT from 114000 capital employed

This was my explanation to you yesterday! "The loan of $100,000 is not included within the capital employed amount of $114,000 That $114,000 is the equity capital of Harbin and is separate from the 10% loan capital So, if we’re excluding the $100,000 loan capital that was used to acquire the Fatimah entity, then we must also exclude the Fatimah results" If we are to produce figures adjusted to show the pre-Fatimah position, we need to exclude the $100,000 loan from capital employed and we need to exclude also the Fatimah results The $22,000 retained earnings by Fatimah have been included within " Harbin profit figure It says in the question "The contribution of the purchase to Harbins results for the year ended 30 september 2017 was:" and goes on to show a profit figure of $22,000 And if we are to calculate ratios after eliminating the Fatimah contributions, we need to deduct $22,000 from the profit figure and from the capital employed These three lines from your post don't make sense: "Equity ans liabilities 100,000 100,000 Equity shares of $1 each 14,000 12,000 Retained earnings 114,000 112,000"