Re: Alpha Division (APM12/07)

This topic has 1 reply, 2 voices, and was last updated 9 years ago by Ken Garrett.

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May 18, 2016 at 6:37 am #315517
Joanna
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Dear Sir,
Alpha Division:
– Amortization of goodwill amounted to $5, per year in both 20X6 and 20X7. The amount of goodwill written off against reserves on acquisition in years prior to 20X6 amounted to $45m.
I do not understand why the adjustment for capital employed for goodwill in 20X7 is $50m and not $5m? It is because the capital employed for 20X6 will have already been adjusted for in which it will be the opening capital employed for 20X7?
Thanks for your help!
Regards,
Joanna.
May 18, 2016 at 7:13 am #315535
Ken Garrett
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That is right. Historically, they have been writing off goodwill @ $5m/year. If that had not happened, the b/f capital employed for 20×6 would be 45m greater and for 20×7 50m greater.
The effect on profit is only $5m/year.
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