ExpertHard1 markMultiple Choice
ACCA · Question 62 · Interpretation of Financial Statements
Section B - Case 2
Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Draft Equity is $1,500,000, Non-current liabilities $500,000.
Assuming the revised profit before tax ($573,000) is equal to Profit Before Interest and Tax (PBIT), and the draft Equity figure needs to be updated with the profit adjustment, what is the revised Return on Capital Employed (ROCE)?
Section B - Case 2
Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Draft Equity is $1,500,000, Non-current liabilities $500,000.
Assuming the revised profit before tax ($573,000) is equal to Profit Before Interest and Tax (PBIT), and the draft Equity figure needs to be updated with the profit adjustment, what is the revised Return on Capital Employed (ROCE)?
Answer options:
A.
22.5%
B.
28.7%
C.
27.0%
D.
35.3%
How to approach this question
1. Find revised PBIT ($573,000). 2. Find revised Equity: Draft Equity ($1,500,000) + Increase in Profit ($123,000) = $1,623,000. 3. Find Capital Employed: Revised Equity + NCL ($500,000) = $2,123,000. 4. Calculate ROCE: (PBIT / Capital Employed) * 100.
Full Answer
C.27.0%✓ Correct
Revised PBIT is $573,000. The draft equity of $1,500,000 must be increased by the net profit adjustment of $123,000, making revised equity $1,623,000. Capital Employed = Revised Equity ($1,623,000) + Non-current liabilities ($500,000) = $2,123,000. ROCE = ($573,000 / $2,123,000) * 100 = 26.99%, rounded to 27.0%.
Common mistakes
Forgetting to add the profit adjustment to the draft equity figure before calculating Capital Employed.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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