From the following data, calculate the Return on Capital Employed (ROCE):
Operating Profit (PBIT): $150,000
Interest: $20,000
Tax: $30,000
Total Assets: $1,200,000
Current Liabilities: $200,000

Answer options:

12.5%

10%

15%

13%

How to approach this question

ROCE = Profit Before Interest and Tax (PBIT) / Capital Employed. Capital Employed = Total Assets - Current Liabilities.

Full Answer

C.15%✓ Correct

Capital Employed = Total Assets ($1,200,000) - Current Liabilities ($200,000) = $1,000,000. ROCE = PBIT ($150,000) / Capital Employed ($1,000,000) = 0.15 or 15%.

Common mistakes

Using Profit After Tax instead of PBIT, or failing to deduct Current Liabilities from Total Assets.

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Practice the full ACCA MA — Management Accounting Practice Exam 2

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