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Dear tutor,
In Bpp textbook 2020 activity 1 return on capital calculation we are given the following data.
Extract from the statement of profit and loss.
Gross profit. 300
Finance cost. (10)
Profit before tax 230
Tax. (70)Profit for the year. 160
Extract from the statement of financial position.
Non current assets. 550
Equity.
Share capital. 200
Share premium. 40
Retained earnings. 500
Revaluation surplus. (60)Calculate the return on capital employed for the year ended 31 December 20×1. Give your answer as a percentage to one decimal place.
Solution
23.4%
230+10/800+225*100%=23.4%
I can’t understand why we sum 800(share capital)+225.
How was 225 calculated ?
Thank you in advance.
Hi,
I can’t see where they have got the 225 from in the information that you have given. The ROCE is the equity plus net debt. I can only assume that the 800 is the equity (200 + 40 + 500 + 60). Is there something mentioned specifically in the question regarding the company debt? It looks to be half of the non-current asset total (i.e. 50% x 550).
Thanks
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