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Dear Tutor,
I have a question relationg to BPP question 89 PC from past exam paper 12/08:
In this question the net profit is given as well as the value of the net assets. But it is stated that the value of the net assets is as at beginning of year. The ROI in the answer is calculated using the net profit and the value of the net assets at start of year.
Would it be acceptable to calculate ROI e.g. for 20×5 using the net profit of the year and the value of net assets calculated as: value of net assets at start of year x20x5 + value of net assets at start of year 20×6/ 2.Normally it would be OK (there is no strict rule about what figure to use for net assets).
However the one problem here is that if you did use the average value, then you would not be able to arrive at an ROI for X8 because you do not know the closing value.
For that reason, using the opening value is better here.
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