60.1K

Verified Solution

Link Copied!

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 Property Machinery and equipment Motor vans Marketable investments 147.6 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 Sales revenue Cost of sales Gross profit Wages Depreciation Research and Development Allowance for trade receivables 231.5 -143.2 88.3 -43.5 -14.8 -40 -10.5 -20.5 Operating loss Income from investments 0.6 -19.9 08 -20.7 Interest payable Normal loss before taxation Restructuring costs Loss before taxation -26.7 Tax Loss for the year -26.7 An analysis of the underlying records reveals the following: 1. The research and development expenses relates to the cost of developing a new product in the previous year. This cost is written off over a two-year period (starting last year). However, this is a prudent approach and the benefits are expected to last for 16 years. 2. The allowance for trade receivables (bad debts) was created this year and the amount of the provision is very high. A more realistic figure for the allowance would be 4 million. 3. Restructuring costs were incurred at the beginning of the year and are expected to provide benefits for an infinite period. 4. The business has 7 per cent required rate of return for investors. Required: Calculate the EVA for the business for the third year of trading. 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 Property Machinery and equipment Motor vans Marketable investments 147.6 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 Sales revenue Cost of sales Gross profit Wages Depreciation Research and Development Allowance for trade receivables 231.5 -143.2 88.3 -43.5 -14.8 -40 -10.5 -20.5 Operating loss Income from investments 0.6 -19.9 08 -20.7 Interest payable Normal loss before taxation Restructuring costs Loss before taxation -26.7 Tax Loss for the year -26.7 An analysis of the underlying records reveals the following: 1. The research and development expenses relates to the cost of developing a new product in the previous year. This cost is written off over a two-year period (starting last year). However, this is a prudent approach and the benefits are expected to last for 16 years. 2. The allowance for trade receivables (bad debts) was created this year and the amount of the provision is very high. A more realistic figure for the allowance would be 4 million. 3. Restructuring costs were incurred at the beginning of the year and are expected to provide benefits for an infinite period. 4. The business has 7 per cent required rate of return for investors. Required: Calculate the EVA for the business for the third year of trading

Answer & Explanation Solved by verified expert

See Answer