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Sir as basic rule PBIT is Profit b4 tax plus interest on loan capital, right? The doubt I have is do we need to add interest on bank OD too for calculating PBIT?
And sir while doing one of the questions in my revision kit I saw the capital employed excluded amounts for deffered tax although its a non current liability so y is that.“do we need to add interest on bank OD too for calculating PBIT?” – it’s most unlikely that you’ll be able to isolate out the interest on an overdraft from any other interest so I’m going to say that PBIT is profit before tax with the entire interest expense added back
As for deferred tax – it’s not really capital that is being employed, is it? It’s a notional book calculation and isn’t really represented by available assets in the way that shares and reserves are represented by available assets
So some purists will exclude deferred tax figures from the calculation of “capital employed”
But, let’s be honest here – how much difference is it going to make? How material is the difference likely to be between capital employed inclusive of deferred tax compared with capital employed exclusive of deferred tax?
Got it sir. Thanks a lot.
Yeah right its not going to material as compared to the total.Sir one more thing. Y dont we need to adjust the consolidated profits for interest on intra group loans.
I can’t answer that! I can’t imagine why we don’t! Unless you’re in the area of ratio analysis again – but even then, you wouldn’t be looking at ratios in a consolidation question.
Don’t know where this question is coming from – have you seen an example where “we don’t adjust consolidated profits for interest on intra-group loans”
No Sir I havent but done some questions comprising intra-group loans. Today I was doing a question in the Kaplan kit (Pyramid) which had an intra-group loan. So I thought y not ask you y we don’t although I know interest is not considered while adjusting retained earnings.
Ok, firstly, you will NOT be asked an interpretation question in a consolidation situation
Secondly, a prospective lender or user of the financial statements is going to need to know not only how an individual company has performed in isolation but will also want to know about any related party activity
Thirdly, with less than 5 weeks to go before the F7 exam, I suggest that you concentrate your efforts on getting 100% on top of the topics within the syllabus! The esoteric elements of advanced corporate reporting you can leave until P2 and beyond. 🙂
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