- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
Sir, in this question why are we not subtracting the cost of machine 0.8m from the capital employed?
Thank you in advance!
I assume that you are referring to the question in the BPP Revision Kit.
They are buying a new machine at a cost of $0.8M and therefore we need to add the cost of 0.8M to the non-current assets, not subtract it.
But sir, in Kaplan there is a question (below)
At the end of 20X1, an investment centre has net assets of $1m and annual operating profits of $190,000. However, the bookkeeper forgot to account for the following:
A machine with a net book value of $40,000 was sold at the start of the year for $50,000 and replaced with a machine costing $250,000. Both the purchase and sale are cash transactions. No depreciation is charged in the year of purchase or disposal. The investment centre calculates return on investment (ROI) based on closing net assets.Assuming no other changes to profit or net assets, what is the return on investment (ROI) for the year?
Here we are subtracting the new machine cost of 250k from net assets, why is that so?
Thank you in advance!
- You must be logged in to reply to this topic.