my query is- why dividend paid/distributed is added to terminal/closing capital employed to calculate average capital employed. there was a particular sum where closing CE is calculated first and then 100% dividend paid is added and 1/2 of current year profits is deducted to calculate average CE. please also help me by providing notes of valuation chapter as i have lots of confusion wrt. capital employed and future maintainable profits. thank you..
28 May 2015
since in classes they add half of profits distributed and deduct half of profit retained so there will be more confusion so best is to follow wat icai does for exam purpose
29 May 2015
Dividend paid during the year is paid out of the profit earned during the year. The balance in P&L a/c appearing in the closing balance sheet is short of that amount and only after adding the dividend paid out will the full current year's profit be included in the closing CE. Thereafter, half of the current profit is deducted.
29 May 2015
If you are taking Simple Average Adjusted Profit then in that case you have to take Average Capital Employed. In Weighted Average Adjusted Profit you should take Closing Capital Employed. If two balance sheet is given then take Average Capital Employed.
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