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Kaplan Kit – Qs- Armclif co
Part (a), as per my understanding qs ask us to calculate roce by avg method, which is ROCE = Avg Annual Profit/ Avg capital investment.
Avg capital investment =( intital investment + Scrap Value ) / 2
but in this qs they have done differently,
like this
Capital employed
year 1- 14+0.5
year 2- 11+0.5
year 3- 08+0.5
year 4- 05+0.5
total of this then divided by 4.why the avg capital investment formula not used here
for eg- (14+(0.5*4)+2) / 2
0.5, additional investment for 4 year
2 is residual value.please help in this. thankyou
This is not an exam standard question
When a question has no date it is not of exam standardThe confusion arises because there are different methods to calculate the average capital investment, and the method used can depend on the specific requirements of the question.
The average capital investment is calculated by taking the book values of the asset over its life and then dividing by the number of years.
This method averages the capital employed over the years, considering the depreciation and any additional investments. This method is used at times to get a more accurate reflection of the capital employed over the period.Alternatively, the formula you mentioned can be used
In summary, both methods are valid, but the choice of method depends on the context and the specific instructions given in the question.
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