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Hello there
Kindly please tell me whether my workings on the below mentioned problem is right or notB co has 2 divisions AD and ID
The net assets at 31 December were as follows
2013. 2012
Non current
Assets(bv). 75600. 64800
Net current assets. 64400. 55200.
Capital employed. 140000. 120000
Nca acquired in year. 19200. 18000
No disposal were there in the above mentioned periodThe total capital employed of b co were invested as follows
Division. %ofcapitalemployd
AD 40.
ID 60
*Dep is charged 10%pa on rbd method
*Operating cash flows were as follows.
2013. 2012
AD. 14.4. 13.1
ID. 20.0. 18.0
Calculate the R01 using the avg capital method achieved by each divisionWhat I did is for the year 2012 I added 64800+55200 and 16200(18000 less 10%dep) I got 136200 sice it’s based on avg capital I divided it by 2 and got an answer of 68100(AD division 27240 and 1D division 40860 ) now I calculated the ROI for AD as 13.1m÷27240 =48.69 and for ID as 18.1m÷40860 = 44 similarly I did for the other division as well is it right ??
Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers – they have answers and explanations!
You can only calculate the ROI for the year 2013.
For AD, the total capital employed at the start of the year is 40% x 120,000 = 48,000.
The capital employed at the end of the year is 40% x 140,000 = 56,000
Therefore the average cap employed = (48,000 + 56,000) /2 = 52,000.The profit for the year = 14,400 – (10% x 55,200) = 8,880
The ROI = 8,880 / 52,000 = 17.08%
Thank you john for your reply I really appreciate it. I have some doubts regarding the answer I would be really greatfull if you clear it out to me
1) why can’t we calculate roi for the year 2012?
2)there were new non current assets purchases in both the year is it already included in the capital employed given in the sum or should we add that ?
3) should we deduct the depreciation from the operating cash flow in order to arrive to the profit figure to be included in the ROI . And why did you deduct 10% from 5520 like it’s a current asset , right ?
4)what exactly to do when they ask average capital employed like is it adding the capital employed at the beginning of the year and the capital employed at the end if the year and dividing it by two
Thanking you in advanceThank you john for your reply I really appreciate it. I have some doubts regarding the answer I would be really greatfull if you clear it out to me
1) why can’t we calculate roi for the year 2012?
2)there were new non current assets purchases in both the year is it already included in the capital employed given in the sum or should we add that ?
3) should we deduct the depreciation from the operating cash flow in order to arrive to the profit figure to be included in the ROI . And why did you deduct 10% from 5520 like it’s a current asset , right ?
Please help me with these questions
Thank you4)what exactly to do when they ask average capital employed like is it adding the capital employed at the beginning of the year and the capital employed at the end if the year and dividing it by two
Thanking you in advance1. Because we don’t know the capital employed at the start of 2012 and so cannot calculate the average capital employed.
2. Yes – they must already be included in the SOFP figures at the end of the year.
3. The operating cash flow is the profit before depreciation – depreciation is not a cash flow – so we subtract it to get the profit. Sorry, my mistake, I should have subtracted 10% x 64,800.
4. The average cap employed is the average of the opening and closing amounts – add them up and divide by 2 to get the average.
Thank you John for your reply I appreciate it…the thing is the value of the non current asset given in the question are net book value at the end of the year, so my doubt is aren’t they already charged with depreciation in order to arrive to that figure ?
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