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question-https://www.accaglobal.com/content/dam/ACCA_Global/Students/prof/p5/d15_hybrid_p5_q.pdf
answer-https://www.accaglobal.com/content/dam/ACCA_Global/Students/prof/p5/p5-2015-dec-hybrid-a.pdf
Hi,
I have two doubts in question 1a1)
“There has been $23·1m of marketing spent each year for the last two years in order to build the brand of IC long term.”when adjusting for capital employed why isnt it being added for both years? the whole purpose of the adjustment is to reflect the marketing exp as an asset, so total value is 23.1*2=46.2 which should be the value added to capital employed, but they have added only 23.1
2)
the operating lease value added 115 to capital emlployed
shouldn’t it be 115-(115/4)=86.25, ie Net book value?i saw this post
https://opentuition.com/topic/dec-2015-iron-chicken/you have mentioned
Cap emp in EVA is the opening cap emp and that would not be affected by this R&D.Marketing: as for R&D above.
opening capital employed is the brought forward of last year’s capital emp, which has also not adjusted the 23.1 marketing spent, so technically you have to add last year’s and this year’s right?
even kaplan text book says so: “this also means any prior year expenditure is also added in to capital employed”i am confused :/
Sorry, you are correct. The EVA calculation in the question is deliberately incorrect and you are asked to evaluate it. The other year’s marketing is added to CE in the answer so as to correct the calculation.
R&D is OK as there was expenditure in the current year only.
@kengarrett said:
The other year’s marketing is added to CE in the answer so as to correct the calculation.Sorry sir, the question clearly says that the marketing expense was “spent each year for the LAST TWO YEARS”, not “these two years”, meaning the years ended 30 June 2013 and 2014. So the capital employed brought forward to this year (year ended 30 June 2015) should have both LAST TWO years’ marketing added to it (i.e. $23.1m*2 = $46.2m). Therefore the official answer’s adjusted CE should have been $2,420.1 + $23.1m = $2,443.2m. This also means that the NOPAT should not include a $23.1m as NO marketing was spent for this year, hence no need to add back.
Please clarify, as OP’s doubt has not been cleared.
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