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ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements

Between two years, a company's non-current asset turnover rose sharply although revenue was unchanged. Which is the most likely explanation?

Selling non-current assets without replacing them is the likely cause. Non-current asset turnover is revenue divided by non-current assets, so with revenue unchanged, a smaller asset base raises the ratio. Revaluation, new acquisitions and lower depreciation all increase carrying amounts and reduce it.

  1. AA large revaluation increased the carrying amount of property
  2. BNon-current assets were sold and not replaced, reducing their carrying amountCorrect
  3. CA new factory was acquired late in the year
  4. DDepreciation policy changed to a lower annual charge

Explanation

Turnover is revenue divided by non-current assets. With revenue unchanged, a rise means the asset base fell. Selling assets without replacement reduces it. The other options would increase the asset base and so lower the ratio.

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