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ACCA Applied Knowledge · Management Accounting · Performance measurement - overview

Brand Ltd has operating profit of $90,000, non-current assets of $400,000 and net current assets of $200,000. Non-current liabilities are $100,000 and equity is $500,000. What is the return on capital employed (ROCE), using capital employed as total assets less current liabilities?

ROCE is 15%. Capital employed is total assets less current liabilities, which equals $600,000 (equity $500,000 plus non-current liabilities $100,000). Operating profit of $90,000 divided by $600,000 gives 15%. Using equity alone would wrongly give 18%.

  1. A15.0%Correct
  2. B18.0%
  3. C22.5%
  4. D30.0%

Explanation

Capital employed = non-current assets 400,000 + net current assets 200,000 = 600,000 (also equity 500,000 + non-current liabilities 100,000). ROCE = 90,000/600,000 = 15%. Using equity only gives 18%, which is return on equity-based capital and is wrong here.

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