Divisional Profit Measurement (Collin)-Examples

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Solution of Pb 20.14 (5ed) and Pb 20.27(6th ed)

Current Budgeted ROCE = Return / Capital Employed(330 / 1,155) x 10028.57 %

Capital employed = SHE + Total Liab OR Capital employed = Total assetsW-1: Capital Employed:

1 Net Current assets 3752

Net Fixed Assets:

Cost of Fixed assets 1,500Less: Accumulated dep (720) 780

Capital Employed 1,155

Required a) Suggestion for 4 transactions:Transaction A:

Profit decrease by 8,000 due to cash discount given to customer.Revised ROCE = Return / Capital Employed(322 / 1,125) x 10028.62 %

Return: Capital Employed:

Budgeted profit 330 Net Current assetsLess: Cash discount (8) Budgeted Net current asset

322

Less; decrease in debtors

Net Fixed Assets:

Cost of Fixed assets 1,500Less: Accumulated dep (720)

Capital Employed

Transaction B:

Revised ROCE = Return / Capital Employed(345 / 1,195) x 10028.87 %

Return: Capital Employed:

Budgeted profit 330 Net Current assetsadd: Increase in contribution 15 Budgeted Net current asset

345

Add: Increase in stock

Net Fixed Assets:

Cost of Fixed assetsLess: Accumulated dep

Capital Employed

Transaction C:

Revised ROCE = Return / Capital Employed(320 / 1,095) x 100

29.22 %

Return: Capital Employed:

Budgeted profit 330 Net Current assetsLess: Loss due to sale of fixed asset (25) Budgeted Net current assetLess: Reduction in profit (45)add: Reduction in depreciation b/c

Net Fixed Assets:

asset is sold 60 Cost of Fixed assets

RETURN320

Less: Accumulated dep

Capital Employed

A

ssumption:

Loss on sale of fixed assets:

Cash received from sale of assetCost of fixed asset 300,000 HO, that is why there is no impacLess: Accumulated depreciation of cash on net current asset.(Boo(300,000 x 4/5) (240,000) Cash is normally hold at head offiWritten Down Value 60,000Sold at 35,000Loss on sale of FA 25,000

Transaction D:

Revised ROCE = Return / Capital Employed(347 / 1,299) x 10026.67 %

Return: Capital Employed:

Budgeted profit 330 Net Current assetsadd: Decrease in revenue cost (Inc in CM) 52.50less: Increase in depreciation (180 / 5 y) (36) Fixed Asset:347 Cost of Fixed asset (1,500+180)Less: Accumulated dep (720 + 3Assumption:Cash paid on purchase on asset is provided by

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