Capital Employed for Normal Rate of return calculation Should be Avge Capl Employed or Closing Capl emplyd?
Avge capl emplyed is used cos Avge of prfts retd & Pfts distributed ,wil be employed during the year.
The terminal capl employed is adopted since it is capital employed on valuation date&FMP s earned on this base & not avge capl.
Diffirent books gve diffrnt approaches,can anyone clarrify which one s more logical?
When valuation is to be done under Capitalisation Method then we use Closing Capital Employed and under Super Profit Method we use Avg. Capital Employed.
However, if the question specifically mention which capital to use for valuation then we have to follow the instructions given in question.
Yes when we apply capitalization method then we use only closing capital emploed .
& under super profit both approach are correct & when not specified abt method then do by both method it is not more time consuming.
Gupta Sachdeva & Co. Chartered Accountants
New Delhi
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