21 % Decrease

[Acid]

Hi ,

In GTG Studytext page A3.10 , Example can you explain me how we came to 21 % decrease



...increase was outweighted by the decrease in the asset turnover ration from 1.8 to 1.42 equating to a 21 % decrease


Thanks in advance.

Acid

[Acid]

Hi there ,

In GTG Studytext page A3.17 Answers to test yourself no 3 .

When calculating the 1. ROCE why have we taken the demoniator as ( $22560 + $ 2500 ) while on page A3.13 in the Statement of financial position it says that total net assets are only $22560 ..............?

Acid

[Tia]

Hi Acid

Glad to know you've already started studying.

Regarding your query on page A3.10, the calcualtion to arrive at the 21% decrease is [(1.8 - 1.42) x 100] / 1.8.

As regards the Test Yourself on page A3.13 / A3.17, if you refer to the formula of ROCE on page A3.9, the denominator is the shareholder's funds [B]plus [B]the medimum and long term debt. To answer your question, the amount of $22,560 pertains to the shareholder's funds i.e equity plus reserves while the other amount of $2,500 pertains to the 12% debentures which would come under long-term debt. The balance sheet in this problem has been presented in a different way, which probably confused you to consider the net assets as the denominator. In this case, go by the formula of ROCE.

Do let me know of any further clarifications.

Pritika.

[shunmas]

Hi Tia !

In the formula, you have divided it by 1.8...Whereas in college, we have been taught [New - Old/Old] * 100.

Can you please explain this?

Thanks in advance

[hariharm]

Hi Shunmas,

Tia's formula is correct. You have to stae your college formula slightly differently, as:

(new - old)/old = (1.42 - 1.8)/1.8, since the ratio declined .from 1.8 to 1.42.