Question

Pisces plc produced the following statement of financial position and income statement at the end of the third year of trading: Statement of financial position (balance sheet) as at the end of the third year €m ASSETS Non-current assets 40 Property Machinery and equipment Motor vans 80 Marketable investments Current assets Inventories Trade receivables Cash Total assets EQUITY AND LIABILITIES Equity Share capital 36.5 Reserves 116.5 Non-current liabilities Loan notes Current liabilities Trade payables 62.5 259

The answer to the question above is posted below! I just need an explanation of how NOPAT and net assets were adjusted below.

Answer 1

-20.50 € Calculation of NOPAT Operating Loss EVA* adjustments Reseach & development (note 1) Excess allowance for trade receivables (note 2) 35.00 € 6.50 € 41.50 € 21.00 € Adjusted NOPAT *All the amounts are in million Net assets calculations Property Machine & equipment Motor vans Marketable securities Inventories Trade Receivables Cash Total Assets Trade Payables Total Liablities Net Assets 40.00 € 80.00 € 18.60 € 9.00 € 45.80 € 64.60 € 1.00 € 259.00 € 62.50 € 62.50 € 196.50 € (A) (B) (A-B) Add- Research & development Exps (note 1) Allowance for trade receivables (note 2) Restructuring Expenses (note 3) 70.00 € 6.50 € 6.00 € 82.50 € Less- Marketable Investments 9.00 € 270.00 € Adjusted Net assets *All the amounts are in million

Notes Note 1 Reseach & development in NOPAT Adjusted in Profit Life taken So total expense on Reseach & development (40*2) Actual life Actual expense on Reseach & development Excess written off in profit added back (i.e. 40-5) 40.00 € 2 years 80.00 € 16 years 5.00 € 35.00 € 80.00 € 16 Years Reseach & development in Capital invested Reseach & development Expenses (A) Life To be written off in 1 year To be written off in 2 year time (B) Reseach & development Expenses at end of 2nd Year (A-B) 10.00 € 70.00 € (As the requirement of the question is to provide the EVA for third year it means we are at the end of 2nd year so the expenses to be written off is for 2 years i.e. 5 + 5) Note 2 Alllowance for trade receivables Alllowance for trade receivables has to be Excess alllowance for trade receivables Add back to the assets 10.50 € 4.00 € 6.50 € 6.50 € Note 3 Restructuring expenses Added back to profit and Assets 6.00 € 6.00 € These are added back to the assets and profit as they will provide benifits over infinite period so these are to be treated as the capital expenditure and hence to be treated as Assets and added back to profit and added in assets

21.00 € 7/ EVA = NOPAT-(R-C) NOPAT RATE OF RETURN (R) CAPITAL EMPLOYED (C) EVA = NOPAT - (R-C) * All the amounts are in million 270.00 € 2.10 €