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How did they arrive at the capital employed for 2013 & 2014? Is it not total assets less current liabilities?
Capital employed = long-term finance = share capital+reserves + long-term liabilities
(which must always be the same as total assets – current liabilities, for the SOFP to balance 🙂 )The one figure that is always arguable is the bank overdraft. Bank overdrafts have to be shown in the SOFP as current liabilities, but for ratio analysis and EVA it is a question of whether or not the company intends the overdraft to remain in the longer term – if they do, then for ratios etc. they are better treated as part of the long-term finance.
Given the way the overdraft is increasing in this question, suggests that they are using it as long-term finance.Dear sir,
Why the capital employed for EVA 2013, 2014 is taken from SOFP 2012, 2013?
Tks you in advance!
You must ask in the Ask the Tutor Forum if you want me to answer 🙂
In EVA we always using the opening capital employed (if we have the information available).
However don’t worry too much about EVA – it is being removed from the syllabus for P4 after this weeks exam, so it is very unlikely it would be asked this time.
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