ACCA Applied Knowledge · Management Accounting · Monitoring performance and reporting
Dunmore Co has operating profit of $240,000, total assets of $1,700,000 and current liabilities of $200,000. What is its return on capital employed (capital employed = total assets less current liabilities)?
ROCE is 16.0%. Capital employed is total assets of $1,700,000 less current liabilities of $200,000, which is $1,500,000, and operating profit of $240,000 divided by this gives 16%. Using total assets as the base would wrongly give 14.1%.
- A14.1%
- B12.0%
- C16.0%Correct
- D10.0%
Explanation
Capital employed = 1,700,000 - 200,000 = 1,500,000. ROCE = 240,000 / 1,500,000 = 16.0%. Using total assets gives 14.1%, which fails to deduct current liabilities.
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