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Hi sir,
with regards to Dec 17 Q32 ACCA Past Exam PaperI would like to ask why for part a) the calculation of ROI, the division c and e, about the fixed cost-depreciation. 30% of the depreciation costs in each division related to asset controlled by not owned by Head Office.
Why we are add back 30% of the depreciation cost using net profit???
Why not add back 70% of the depreciation cost using net profit??because as to what I am thinking is that 30% of the depreciation cost is related to controllable asset so it is fair to be included, but the remaining 70% is related to asset owned by Head Office??
Please correct me, if I am wrong
Thanks
The question says that 30% of the depreciation costs relate to assets controlled by the Head Office.
Therefore 30% of the depreciation is not controlled by the division, and therefore this is what needs adding back to the profit.
What matters is not who owns the asset, but who controls it. (And nowhere does the question state that the other 70% are owned by head office anyway – most likely all of the assets are owned by the division.)
Orh that means the question is telling that 30% of the depreciation cost is controlled by Head office, but the Head office does not own for it. Am I correct?
Thanks
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