ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments
Marlow & Co is performing due diligence for Karst plc on a target, Delta Foods. Delta's management reports EBITDA of $8.0m, which includes a one-off $1.2m gain on disposal of property and excludes $0.5m of owner-director salary paid above market rate that will cease after acquisition. What is the most appropriate maintainable EBITDA to report?
Maintainable EBITDA is $7.3m. Start with reported $8.0m, deduct the one-off $1.2m property gain because it will not recur, then add back the $0.5m excess owner salary that will cease post-acquisition. The result is 8.0 - 1.2 + 0.5 = $7.3m.
- A$8.0m
- B$7.3mCorrect
- C$6.8m
- D$9.7m
Explanation
Remove the non-recurring gain (8.0 - 1.2 = 6.8) and add back the above-market owner salary that will not continue (6.8 + 0.5 = 7.3). Note the salary was an expense, so the add-back increases earnings. $6.8m ignores the add-back; $9.7m reverses the sign on the gain, and $8.0m makes no adjustments.
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